UCLA

Of the large, public companies that seek to remain in business through bankruptcy reorganization, only 70 percent succeed. The assets of the other 30 percent are absorbed into other businesses. Success is important both because it is efficient and because it preserves jobs, communities, supplier and customer relationships, and tax revenues. This Article reports the findings of the first comprehensive study of the variables that determine whether a business will succeed or fail. Eleven conditions best predict companies' survival prospects. First, a company that even hints in the press release announcing its bankruptcy that it intends to sell its business is highly likely to fail. Second, reorganizations assigned to more experienced judges are more likely to succeed. Third, companies headquartered in isolated geographical areas are more likely to fail. Fourth, companies that report greater shareholder equity are more likely to fail. Fifth, companies with routinely appointed creditors' committees are more likely to fail. Sixth, companies with debtor-in-possession (DIP) loans are more likely to succeed. Seventh, companies that prepackage or prenegotiate their plans are more likely to succeed. Eighth, companies that file in periods of low interest rates are more likely to succeed. Ninth, larger companies are more likely to succeed. Tenth, manufacturers are more likely to succeed. Eleventh, companies with positive pre-filing operating income are more likely to succeed. System participants may be able to improve survival rates by shifting cases to more experienced judges and perhaps also by paying greater attention to the decisions to appoint creditors' committees, to prenegotiate plans, to obtain DIP loans, and to publicly seek alliances.