2026 Theses Doctoral

Essays in Bankruptcy Law

Marcovich Gross, Adi

This dissertation advances bankruptcy scholarship by examining three distinct but related research questions at the intersection of corporate governance, financial distress, and systemic risks. The first chapter analyzes the long-term social effects of bankruptcy law and the ways in which it potentially perpetuates sexual misconduct by denying victims their day in court, limiting their recovery, and distorting monitoring incentives. Specifically, because current bankruptcy law protects secured creditors and often shields managers as well, these groups have little incentive to monitor sexual misconduct, as they are effectively insulated from damage claims through the absolute priority rule and the use of third-party releases.

To prevent that result, the first chapter offers several policy proposals to ensure that managers, lenders, and other financially healthy parties remain accountable and invest resources to fight sexual misconduct. Managers could, for example, monitor sexual misconduct directly, and lenders could modify their pricing and underwriting practices to encourage compliance. While these policy proposals are designed to address sexual misconduct, they have broad applicability to other ESG risks, such as human rights and environmental violations. The first chapter provides a novel discussion of the impact of bankruptcy law on corporate misbehavior and resource allocation in an era of corporate responsibility.

The second chapter challenges the assumption that director insolvency duties always serve creditor interests, arguing that they can generate ‘congestion costs’—a surge in bankruptcy cases that overwhelms courts and floods markets with distressed assets at fire-sale prices. Drawing on a comparative analysis of legal responses in Germany, Australia, and the United States during the Covid-19 pandemic, the chapter demonstrates how the presence or absence of rigid insolvency duties can affect bankruptcy congestion and premature filings during times of crisis. To address these concerns, the second chapter proposes a designated carve-out, providing temporary relief from insolvency duties during macroeconomic shocks. Where legal reform is impractical, it suggests alternative contractual solutions such as automatic debt deferrals. By integrating macroeconomic considerations into insolvency law, the chapter reframes the role of director duties in corporate governance and financial stability. The second chapter concludes that flexible insolvency frameworks are essential to building crisis-resilient markets.

The third chapter shows how covenant-lite loans and recent developments in lending markets intensify intercreditor competition and enable creditors to reposition themselves within the bankruptcy priority waterfall before a Chapter 11 filing—a phenomenon the chapter terms priority opportunism. Recent out-of-court restructurings, including J. Crew and Serta Simmons, illustrate how priority opportunism operates. Debtors, private equity sponsors, and creditor coalitions exploit contractual flexibility to effect prepetition priority shifts through collateral transfers and targeted loan amendments that require only majority approval. These transactions can preserve going-concern value and mitigate holdout problems. But they also entrench the financing monopoly of controlling creditor coalitions, distort incentives around the timing of bankruptcy, and externalize downside risk to non-participating creditors.

Rather than treating these practices as isolated contractual maneuvers, the third chapter analyzes them as a central feature of modern creditor governance. It develops an institutional framework that seeks to preserve the coordination benefits of liability management exercises while constraining their most opportunistic forms. Notably, the third chapter proposes revising the absolute priority rule to permit bounded equity retention, adjusting syndicated-loan voting thresholds to mitigate minority abuse, and adopting clearer judicial standards for reviewing prepetition priority-altering transactions in bankruptcy courts.