The intentional use of chapter XI: Lingering versus immediate filing

Abstract This paper focuses on the timing, i.e. delay or accelerate, of the declaration of Chapter XI prior to financial insolvency. Chapter XI can be declared by firms who believe that the firm can emerge from bankruptcy protection as a re‐vitalized organization. The timing of its selection is proposed to be a function of the level of environmental adversity and organizational attributes, especially slack resources. Recent developments in the bankruptcy code and its usage by firms, suggest the increasing use of managerial prerogative in the selection of Chapter XI prior to financial insolvency. Chapter XI protection can allow firms the necessary time for effective reorganization if managerial intervention is exercised. As a result of a more precise timing of selection and a proactive reorganization, there will be a higher probability of re‐emerging from bankruptcy as a revitalized organization.