Ancient Rome may have given creditors extraordinary powers for persecuting their debtors, but with the empire's economic success came the realization that lenience pays. After tortured transitions in the Middle Ages, when cessio bonorum took on the stigma of sin, England reinstated the discharge of debts as the carrot with which to reward honest debtors. Reorganizations also arose to help creditors. At times of recessions, depressions and credit crunches that prevent the large-scale borrowing that is necessary for a new buyer to acquire a big business, there may be no buyers for a business that should stay in operation. The passage of the Chandler Act of 1938 formalized reorganizations by creating processes inside bankruptcy for what had already been going on.
Reorganizations also save productivity.
Recessionary environments with a dearth of buyers imply that some businesses may be liquidated that should not. In other words, the productive capacity of the business may be falsely destroyed. Reorganization law takes away the threat of an immediate liquidation, saving the productivity that might have been destroyed and preventing a cascade of sales that lead to price drops, leading to foreclosures and more sales. The bankruptcy reforms that the House and Senate have passed strike at the best and most valuable features of bankruptcy law. The reforms reduce the contribution to productivity restoration of both the fresh start and of the reorganization process.