DP2881 How to Sell a (Bankrupt) Company?

Author(s): Francesca Cornelli, Leonardo Felli
Publication Date: July 2001
Keyword(s): auctions, bankruptcy, private benefits, transfer of control
JEL(s): D44, D82, G32, G33
Programme Areas: Financial Economics, Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=2881

The restructuring of a bankrupt company often entails its sale. This Paper suggests a way to sell the company that maximizes the creditors' proceeds. The key to this proposal is the option left to the creditors to retain a fraction of the shares of the company. Indeed, by retaining the minority stake, creditors can transfer the control of the company while reducing to a minimum the rents that the sale of the company leaves in the hands of the buyer.