Morally Bankrupt: Bankruptcy Law, Corporate Responsibility, and Sexual Misconduct.

Table of Contents Introduction I. Escaping Liability for Sexual Misconduct: Bankruptcy as a Loophole A. The Fundamentals of Chapter 11 Bankruptcy i. General Overview ii. Mass Torts in Bankruptcy B. [...]
The MeToo Movement has spurred a wave of sexual misconduct-related lawsuits against corporations, prompting many to file for bankruptcy. Recent examples include the Weinstein Company, Boy Scouts of America, and USA Gymnastics. This Article is the first to analyze the long-term social effects of bankruptcy law and the ways in which it potentially perpetuates sexual misconduct by denying victims their day in court, limiting their recovery, and distorting monitoring incentives. Specifically, because current bankruptcy law protects secured creditors and often shields managers as well, these groups have little incentive to monitor sexual misconduct, as they are effectively insulated from damage claims through the absolute priority rule and the use of third-party releases. To prevent that result, this Article offers several policy proposals to ensure that managers, lenders, and other financially healthy parties remain accountable and invest resources to fight sexual misconduct. Managers could, for example, monitor sexual misconduct directly, and lenders could modify their pricing and underwriting practices to encourage compliance. While these policy proposals are designed to address sexual misconduct, they have broad applicability to other ESG risks, such as human rights and environmental violations. This Article provides a novel discussion of the impact of bankruptcy law on corporate misbehavior and resource allocation in an era of corporate responsibility.