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96 Harv. L. Rev. 1121 (1982-1983)


The reorganization petition filed by the Manville Corporation, the nation’s largest asbestos manufacturer in 1982 is an attempt by a healthy and solvent corporation to declare bankruptcy. It differs greatly from a traditional reorganization case, which involves a debtor that knows who its creditors are and how much it owes them. Manville does not know who the majority of its creditors are or the amount of its potential tort liability. It is instead using the 1978 Bankruptcy Reform Act's Chapter 11 reorganization provisions to seek shelter from a huge but speculative tort liability. In doing so Manville presents a major challenge to the newly established bankruptcy system. This note examines how the system should be used by solvent companies facing massive civil liability. It argues that bankruptcy courts should inquire into both the financial condition of the company and the validity of its liability projections. Reorganization petitions where the debtor’s projections were proven inaccurate, or when the debtor corporation does not face insolvency in the foreseeable future must be dismissed. The note asserts that even if a corporation has a right to protection under the Bankruptcy Code courts should only estimate its total liability and establish a compensation fund for the plaintiffs. The plaintiffs should be allowed to pursue their claims in the courts where they have filed their suits and return to bankruptcy court to execute their judgments against the fund.


Reprinted with permission of Harvard Law Review.



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