Courts in England and the United States have traditionally adopted different approaches to the question of valuation in debt restructuring cases. In England, courts have tended to determine whether to approve the allocation of equity in a debt restructuring by reference to the amounts creditors would have received if no debt restructuring had been agreed. The company has typically argued that if no debt restructuring had been agreed either the business or the assets would have been sold. Typically, some evidence of exposure of the business and assets to the market will be submitted to identify the value which would have been achieved in this “counterfactual scenario.” This contrasts with the approach in the United States, where bankruptcy courts have typically avoided reaching decisions on value based on exposure to the market and have relied on the views of the parties’ valuation experts expressed using traditional valuation methodologies.

One benefit of the U.S. approach has been that the uncertainty of the outcome of the valuation litigation has incentivised the parties to bargain, arriving at a consensual deal. However, this paper argues that changes in the organisational and institutional structure of financial and non-financial markets have fundamentally affected the utility of this “bargaining and litigation” model. It argues that changes in the informal rules, norms and beliefs held by market participants make bargaining less likely, and increase the prospects of litigation. It suggests that this insight has implications for the reform of debt restructuring procedures in the United Kingdom, Europe and the United States.