What is Chapter X?
Chapter X was a portion of the bankruptcy code that dictated bankruptcy processes and procedures for corporations. 1978 was the last year corporations were able to file bankruptcy under Chapter X.
How Does Chapter X Work?
Chapter X, (pronounced "Chapter Ten") was originally introduced in the Bankruptcy Act of 1898. Chapter X was used as a blueprint for the reorganization of financially unhealthy corporations.
Though Chapter X was removed in 1978 under the Bankruptcy Reform Act, its ideas were revised and combined with Chapter XI and other bankruptcy laws to create today's Chapter 11.
Chapter X should not be confused with Chapter 10 of the U.S. Bankruptcy Code, which is written for small businesses in financial distress.
Why Does Chapter X Matter?
Chapter X was a notoriously complex procedure, and corporations were often discouraged from entering bankruptcy after reading the extensive and detailed rules outlined in it. Most corporations instead opted to file Chapter XI (Chapter 11 of that time) because it did not displace the company's management and gave management more control over reorganization. Chapter XI was also more popular because it gave corporations more control over how the company would repay creditors and liquidate assets.
Chapter X introduced the concept of disinterestedness, which meant that as a condition of employment, trustees and court-appointed professionals were not allowed to have a personal interest in the outcome of the court rulings.