The increasingly complex capital structures of corporate debtors has been a defining characteristic of large commercial bankruptcy proceedings during the most recent bankruptcy boom. The modern corporate debtor has a capital structure composed of multiple levels of purported secured creditors, and this creates new issues for bankruptcy practice and jurisprudence—the simpler corporate capital structures of prior bankruptcy cycles created a single class of senior secured claims and a single class of unsecured claims consisting of bonds and vendor claims, but this is no longer the case. In addition, as the valuations that fueled the growth of complex capital structures proved to be overly optimistic, it has become painfully clear that there is often little value for the newly minted junior creditor classes, including junior secured classes.
Accordingly, this mix of corporate complexity and overvaluation has caused many recent bankruptcy cases to devolve into disputes between creditors commencing or threatening expensive litigation about the validity and priority of their liens and claims in order to maximize recovery at the expense of other classes of creditors. In such situations, it is often difficult to achieve a resolution acceptable to every class.
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