Abstract
In the past decade, the use of the Chapter XI has soared to the detriment of many creditors, workers, and consumers. A good number of cases were not based on imminent insolvency, but on firms attempts to avoid litigation claims against them, to terminate labor or other contractual obligations, or to gain new financing.
These filings for Chapter XI highlight the use of bank-ruptcy as a strategic option used by management in running a viable organization. This usage is even advised by some academics and management consultants.
While such uses may not be illegal, this paper questions the seeming ease with which a firm may use bankruptcy to escape contractual obligations to customers, suppliers, and other stakeholders. It also questions the “ethics” of the academics and management consultants who recommend such usage. Finally, the paper calls for a change in the law in order to minimize the opportunity for the unethical abuse of the bankruptcy law.
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Dr. Mahmoud Salem is a lecturer, consultant, and executive training specialist. He is President of The Center for Organizational Synergy in Uniondale, New York. His major areas of interest are Global Strategic Management, Organizational System Transformation, Executive Integrity and Business Ethics.
Ms. Opal-Dawn Martin is on the administrative staff of Science Applications International Corporation in McLean, Virginia. Her major areas of interest are International Business and Finance.
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Salem, M., Martin, OD. The ethics of using Chapter XI as a management strategy. J Bus Ethics 13, 95–104 (1994). https://doi.org/10.1007/BF00881578
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DOI: https://doi.org/10.1007/BF00881578