Vol. 9 No. 6 (June 1999) pp. 205-207

Rescuing Business: The Making of Corporate Bankruptcy Law in England and the United States by Bruce G. Carruthers and Terence C. Halliday. Oxford: Clarendon Press, 1998. 582 pp. Cloth

Reviewed by Stefanie A. Lindquist, Department of Political Science, University of Georgia.

In Rescuing Business: The Making of Corporate Bankruptcy Law in England and the United States, Bruce Carruthers and Terence Halliday present a rich and multifaceted study of corporate bankruptcy reform that resulted in the 1978 Bankruptcy Code in the US and the 1986 Insolvency Act in Britain. This comprehensive book offers something for almost everyone. For scholars of comparative law and politics, it provides an intriguing contrast between the processes of statutory reform in two countries with similar legal, political and economic systems. For legislative and interest group scholars, it offers a portrait of the legislative process that differs in many respects from the common portrayal of special interest-dominated politics. For scholars of judicial politics, it reveals the critical role played by judges and lawyers in the statutory drafting process, and highlights the importance of statutory provisions regarding jurisdictional and professional rights. And for more traditional legal scholars, it presents a unique perspective on the connection between property rights and jurisdictional rights, as well as a thorough analysis of many code provisions finally enacted into law.

Although wide-ranging in scope, the study is successful because the authors weave these diverse elements together within a theory of statutory reform that provides a convincing explanation of the reform process, particularly in the area of financial legislation. Since this theory constitutes the book’s central and most important contribution, I begin with a brief description of its parameters, followed by a discussion of several additional aspects of the book.

Carruthers and Halliday’s theory of statutory reform adds a new twist to an otherwise familiar story in sociolegal studies. Research by scholars in the law and society community has revealed the gulf that often emerges between the law as it is formally written ("law-on-the-books"), and the law as it is practically implemented within and by organizations ("law-in-action"). Ambiguous or indeterminate statutory language can often be manipulated by implementing populations in ways that frustrate legislators’ original purpose. This existing scholarship explores a unidirectional hypothesis: statutory language is constructed (and sometimes "subverted") as it is implemented in organizations and applied by courts in the context of disputes. Carruthers and Halliday remind us, however, that the story does not end there. If and when legislators recognize the existence of a gulf between the law on the books and the law in action, they may propose and enact statutory reforms to narrow the gap. This process often takes place at the impetus of professional organizations or academic groups. Thus, law in action influences law on the books in a recursive loop, a fundamental principle that forms the basis for Carruthers and Halliday’s explanation of bankruptcy reforms in both the US and Britain.

Although this may seem like a rather simple, if elegant, theoretical contribution, Rescuing Business builds on this basic theoretical structure by incorporating several additional conceptual dimensions to explain why and how law in action influences law on the books. For example, the authors explore the role of bargaining in the reform process, distinguishing between ordinary bargaining in the market, and "meta-bargaining" in the polity. They argue that implementation of corporate bankruptcy law occurs in the context of everyday bargaining between debtor corporations, financial institutions, other creditors, and labor organizations. This ordinary bargaining between debtors and creditors creates bankruptcy law in action. In contrast, bankruptcy law on the books is created through meta-bargaining among groups within the polity, rather than within the market. Carruthers and Halliday explore the power dynamics underlying ordinary and meta-bargaining in bankruptcy reform, observing that, at least in the US, power in the market did not necessarily translate into power in the polity. Indeed, due to a number of factors, even weak creditors and consumers attained some favorable provisions within the US bankruptcy code as enacted.

The authors add further nuance to this tale of statutory reform by highlighting the role of professionals (most notably lawyers and accountants) as mediators in the recursive loop between law as written and law in practice. Professionals are able to play both sides of the loop by participating in the ordinary bargaining or implementation process, as well as in the process of meta-bargaining over statutory reform. First, they participate in creating the gap between law as written and law in practice by exploiting statutory ambiguities and loopholes on behalf of their clients. Thereafter, as academics or members of professional organizations and commissions tasked with proposing legal reforms, professionals play a role in eliminating ambiguities and loopholes as well. Professionals "spread the disease and then preside over its cure" (p.60). As an analogy, Carruthers and Halliday remind us of the corporate lawyers who loaded corporations with debt in the 1980s mergers-and-acquisitions frenzy, and then restructured those same, subsequently insolvent corporations in the 1990s. Thus, while professional creativity in practice can act to decouple the law on the books from the law in action, professional creativity in the reform process may actually help to close that gap through statutory amendments. This recursive loop may circle indefinitely. One is reminded immediately of the almost constant stream of proposals to amend the Internal Revenue Code as old loopholes are closed and new ones created by tax lawyers and accountants. Not all statutes are similarly subject to the influence of professionals, but financial statutes may be particularly susceptible to their influence in the recursive loop of statutory reform.

Rescuing Business explores a number of other dimensions to the bankruptcy reform process, including the interconnection between property and jurisdictional rights. This relationship is similar to the oft-explored relation between substantive and procedural rights--procedural rights often implicate or shape important substantive rights. Similarly, the distribution of property rights in bankruptcy may be substantially influenced by the individuals selected to preside over the distribution process, as determined in accordance with jurisdictional rights under the statute. In both the US and Britain, battles were waged over what professionals would perform routine bankruptcy work, whether administrative agency staff, existing professional groups of lawyers, or insolvency practitioners. In addition, in the US, Article III judges strongly contested whether newly-appointed bankruptcy judges should also enjoy Article III protections. In both the US and Britain, these jurisdictional issues highlighted the importance of professional expertise as integral to the process of bankruptcy reforms. The authors also effectively explain how differences in the economic and political conditions prevailing in the two countries led to different legislative compromises and statutory provisions in each case.

Rescuing Business is a powerhouse of a book: dense with empirical support for a well developed theory of statutory reform. As a result, no brief review could possibly do justice to this thoroughly researched and well- written study. It is, quite simply, a must-read for scholars interested in the process of statutory reform, particularly as it affects and is affected by corporate activities in market economies.