To the Editor:
The April 30 comments of Jon Yard Arnason in "Unfair Chapter 11 Law Needs Overhaul" (page 26) compel a response. Mr. Arnason has elected to disregard 100 years of congressional policy to foster business reorganization and avoid the despair of liquidation, and has simplistically concluded that Chapter 11 "generally serves little productive purpose, harms the interests of secured creditors, and should be abolished or greatly modified."
These pronouncements ignore the benefits that all constituencies-secured and unsecured creditors, shareholders, vendors, customers, and employees- may derive from the proper employment of the reorganization process. Mr. Arnason ignores the built-in creditor protections contained in the Bankruptcy Code, including those that require adequate protection for secured creditors and the requirement that a plan of reorganization must be found by the court to be in the best interests of all creditors and shareholders.
Mr. Arnason seems willing to pretend out of existence the myriad cases in which financially distressed businesses have successfully reorganized under Chapter 11 and prospered thereafter. Sophisticated practitioners provide the appropriate balance between the rights of debtors and those of creditors to protect against an abuse of the bankruptcy system. The genius of Chapter 11 is that it provides a framework within which debtors and creditors may avoid the disasters of liquidation and maximize business values for the benefit of all parties in interest.
Even if the reorganization process ultimately results in liquidation, an organized liquidation under the aegis of the bankruptcy court is a better alternative than a push-button liquidation by a trustee in bankruptcy. Although some financially distressed businesses may not be capable of reorganization in Chapter 11, there is certainly no reason to abolish the system.
If only a small percentage of patients can survive a heart transplant, there is no reason to abolish the surgical procedure. Those who do survive are the best evidence of the reason why the process should be encouraged. It is no different with bankruptcy reorganization.
Herbert S. Edelman
Kaye, Scholer, Fierman, Hays & Handler,