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Vanderbilt Law Review

First Page

1727

Abstract

This Recent Development examines the validity of this formula, with and without allowances for future inflation, as a tool for valuing the stock to be distributed to creditors in corporate re-organization proceedings. This discussion considers the valuation method both under Chapter 11 of the new Bankruptcy Code and under Chapter X of the now superseded Bankruptcy Act, which is still effective in many pending cases. The Recent Development describes the purpose and effects of equity share valuations in bankruptcy reorganization proceedings, compares the methods that have been used by the courts with methods used by investors to ascertain the investment value of equity securities, and traces the evolution in reorganization courts of the now most common method of determining reorganization value. It then explains how the use of that method, particularly in conjunction with inflation-inclusive earnings forecasts, can result in overstated stock values. Finally, the Recent Development suggests workable alternatives that would avoid such overstatement without, on the other hand,equating the investment value of the shares to their immediate market value.

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