The Authentic Consent Model—Justifying the Collective Liquidation Regime

This chapter develops an alternative model to analyze and justify insolvency law, referred to as the Authentic Consent Model (ACM). Consistent with the discussion earlier in the book, its starting premise is that all (but only) those affected by insolvency law are to be given a choice in selecting the principles which would govern their rights, interests, and obligations. Once these parties have been identified, they are to be given equal weight in the selection process, since their legal status (whether they are employees, secured or unsecured creditors, etc.), wealth, cognitive abilities,...

This chapter develops an alternative model to analyze and justify insolvency law, referred to as the Authentic Consent Model (ACM). Consistent with the discussion earlier in the book, its starting premise is that all (but only) those affected by insolvency law are to be given a choice in selecting the principles which would govern their rights, interests, and obligations. Once these parties have been identified, they are to be given equal weight in the selection process, since their legal status (whether they are employees, secured or unsecured creditors, etc.), wealth, cognitive abilities, and bargaining strength all are morally irrelevant in framing rules of justice. The ACM operationalizes the constructive attributes described earlier by requiring all principles to be selected from its ‘choice position’. Here, all the parties are deprived of any knowledge of personal attributes and must reason rationally. It is shown that parties in the choice position would in fact choose the principles laying down the automatic stay on unsecured claims. The chapter argues that because of the construction of the choice position and the constructive attributes of the parties bargaining in it, the principles chosen are fair and just, and chosen in exercise of the parties' autonomy. As it happens, they are also efficient. The chapter concludes by highlighting how the egalitarian character of the ACM distinguishes it from the Creditors' Bargain.