When the Bankruptcy Code was enacted in 1978, it embodied a bias in favor of reorganization of going concerns wherever possible. This has been the singular distinction between the “American style” of restructurings and the approach used in most other commercial countries. The very concept of “debtor-in-possession” suggests a belief in the chance of renewal which is absent from the “receivership style” of insolvency prevalent outside the United States. This policy predisposition toward recovery has been a powerful stimulus for the involvement of financial investors in the bankruptcy process, which in turn has attracted liquidity that has itself fostered the reorganization of troubled businesses. The very possibility of a corporate turnaround has encouraged investors to take risk in buying discounted equity and debt in restructurings, where there would be far less interest in asset trading in liquidations. On the other hand, the bankruptcy process is not about aspirations and dreams. It is a hard-nosed business and legal environment that is dependent on sophisticated financial parties having confidence in the logic of outcomes. The purpose of this article is to explore whether certain recent trends could undermine that confidence.

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