Skip to main content
Efficient and Inefficient Debt Restructuring: A Comparative Analysis on Voting Rules in Workouts
Cornell International Law Journal (2007)
  • Hyun Chul Lee
Two jurisdictions, Korea and America, have contrasting legal rules governing voting in workouts: Voting Mandating Rule and Voting Prohibition Rule. Voting in a bond workout has long been prohibited in the Trust Indenture Act of the United States. In stark contrast, Korea enacted a unique statute that mandated a voting scheme in workout in an effort to resolve corporate insolvencies crisis and incompetent bankruptcy institutions. Voting facilitates the completion of workouts, but it gives majority creditors an opportunity to disproportionately benefit from workouts. I explore the contrariness of the two seemingly unrelated statutes, and bring their respective implications for efficiency to light. Voting Prohibition Rule prevents every inefficient workout attempt but blocks some efficient workout efforts. Voting Mandating Rule facilitates every efficient workout but enables some inefficient workouts as well. Voting Prohibition Rule works better if debts are concentrated to a handful of major creditors. Voting Mandating Rule is better suited if creditors are atomic and individually non-pivotal. Voting Mandating Rule encounters a dilemma in that it was designed to enable more workouts to take place, but in doing so it may cause workouts to become less effective in reducing bankruptcy costs.
Publication Date
Citation Information
Hyun Chul Lee. "Efficient and Inefficient Debt Restructuring: A Comparative Analysis on Voting Rules in Workouts" Cornell International Law Journal Vol. 40 (2007)
Available at: