Prof. Jonathan Lipson of Temple University School of Law has an interesting post today on the idea of “Relational Reorganization.” Find it over at the ContractsProf blog. He advocates more attention by scholars and lawyers working on debtor-creditor issues to the relational perspective of Stewart Macaulay, a leading contracts scholar in the law-in-action tradition. Macaulay has studied, among other contracts phenomena, the ways that business do and don’t use contracts, including that they typically readjust relationships in light of business realities rather than formal contracts entitlements.
Lipson points out that when business debtors struggle to meet their many obligations, workouts are the norm, and formal contracts give way, no matter the care with which they were entered. Even bankruptcy reorganization is typically mostly consensual. What is different in the debtor-creditor world is that multiple relationships often have to be adjusted or abandoned in a reorganization process. Lipson suggests that more attention to relational thinking could help us better understand various bankruptcy practices, particularly those used in close-knit groups of repeat players, including bankruptcy lawyers, claims traders, and professional distress investors.