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Chapter 11 and asbestos: encouraging private enterprise or conspiring to avoid liability

Warren, Richard C. and Tweedale, Geoffrey (2004) Chapter 11 and asbestos: encouraging private enterprise or conspiring to avoid liability. Journal of business ethics, 55 (1). pp. 31-42. ISSN 1573-0697

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Abstract

This paper explores the American bankruptcy system--especially the Chapter 11 code--which since 1978 has allowed insolvent companies the opportunity to restructure and reorganise with the benefit of court protection from creditors. Particular attention is focused on asbestos companies, such as Johns-Manville, which have been among the most consistent and controversial fliers for bankruptcy under Chapter 11. The history of asbestos and Chapter 11 is explored, against the backdrop of the burgeoning asbestos "crisis", caused by increasing mortality and litigation. Some of the business and ethical issues involved are highlighted by examining in detail a recent bankruptcy (Federal Mogul/T&N in 2001) that has implications in both Britain and America. Chapter 11 bankruptcy is evaluated, particularly in the light of the trend towards similar mechanisms of insolvency in the UK, Europe and the rest of the world. It is concluded that, certainly as regards the experience with asbestos, Chapter 11 offers an inefficient and inequitable method of rehabilitating or rescuing failing businesses.

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