Strategic banckruptcy
Some solvent corporations have entered bankruptcy to gain additional leverage with employees, creditors, and other groups as part of a reorganization. In such situations, bankruptcy is a strategic choice rather than an unavoidable condition [Kolb, Robert, p. 145]. Bankruptcy proceedings can be started by a bankruptcy petition, which may be presented to the court by a creditor or creditors; a person affected by a voluntary arrangement to pay debts set up by the debtor under the Insolvency Act 1986; the Director of Public Prosecutions [Law, p. 149]. Critics charge that it abuses the bankruptcy code by enabling corporations to avoid their moral and legal obligations. However, the obligations to pay legal judgments or fulfill contracts are no different from those to pay other creditors; they are all debts. And the bankruptcy code is designed to enable companies to become insolvent—or would become insolvent if forced to pay a legal judgment or fulfill a contract—to maximize the value of their assets. Moreover, bankruptcy does not permit corporations to avoid their obligations entirely but only to negotiate the terms under which they will be fulfilled [Kolb, Robert, 145].
When the order is made, ownership of all the debtor's property is transferred to a court officer known as the official receiver or to a trustee appointed by the creditors. It replaced the former receiving and adjudication orders in bankruptcy proceedings [Gooch, Williams, p. 153]. Another objection to strategic bankruptcy is that claimants who receive their claims under one set of rules must fight for them again under another set of rules. Thus, victims of defective products who receive awards in court suits are forced to win their case again in bankruptcy proceedings. Workers who negotiate a labor contract in good faith can find themselves back at the bargaining table, this time before a bankruptcy judge. Strategic bankruptcy might be compared to a game of poker in which a dealer with bad cards can stop the game, rearrange some of the hands, and resume the game under different rules [Kolb, Robert, 145].
Kolb, Robert W. (2008). Encyclopedia of Business Ethics and Society. Retrieved from: https://books.google.com/
Gooch, G., Williams, M. (2015). UK-focused dictionary. A Dictionary of Law Enforcement (2 ed.) Oxford: Oxford University Press.
Law, J. (2022). A Dictionary of Law (10 ed.) Oxford: Oxford University Press.