To have a debate about this we really need to add some precision to some of your terms. When you talk about "complete liquidation of assets" there's sort of two things that come to mind, and I'm not 100% sure what you mean.
Option one is what I would call a reorganization: the rights of equity holders are terminated, and creditors (which would include beneficiaries of civil judgements) get some fraction of what they are owed, through a combination of keeping some portion of their existing claims, receiving cash received from selling new stock, and receiving some amount of new stock. Crucially, the business keeps operating when this happens, it's really just reorganizing the capital structure, not doing much to actual business operations.
Option two is a true liquidation: the business stops operating, all of its assets are sold, and the proceeds distributed to creditors and then the corporate entity simply ceases to exist.
The original debate about the "corporate death penalty" arose from how Arthur Anderson was treated in the wake of the Enron scandal. In that case, AA was criminally indicted. A criminal conviction is a huge problem for a public accounting firm, because convicted felons can't be CPAs or audit public companies. Indeed, it was ultimately convicted and barred by the SEC from auditing public companies. But it actually collapsed far before that, basically immediately after the indictment, as all of its clients saw the writing on the wall and dropped them. This was an option 2 liquidation.
Personally, I would only consider an option 2 liquidation the "corporate death penalty". In the case of your friend in the railroad business, it's probably not the socially optimal outcome because you would actually get more money for the victims through an option 1 reorganization than option 2 liquidation. In general that's why option 2 should be sparingly applied: it reduces the resources available to compensate victims, and inflicts collateral damage on employees, vendors, and customers who mostly didn't do anything wrong.
In addition to option 1 and option 2, some people also consider simply indicting a corporation as the "corporate death penalty" because of how in the case of Arthur Anderson, the criminal indictment did pretty much immediately cause option 2. I think that that position is not really consistent with the facts, however. There are at least 54 publicly traded companies that received criminal convictions between 2001 and 2010; 37 of them were still around in 2013, only 5 failed, and of the 5 it doesn't really seem like the conviction had much to do with their demise[0].
Just the costs make the human death penalty hard to justify as "socially optimal" but it's done anyway, despite even the supposed deterrent value being debunked.
In the corporate case it has the positive effect of punishing a management structure that allowed/enabled the injury.
Option one is what I would call a reorganization: the rights of equity holders are terminated, and creditors (which would include beneficiaries of civil judgements) get some fraction of what they are owed, through a combination of keeping some portion of their existing claims, receiving cash received from selling new stock, and receiving some amount of new stock. Crucially, the business keeps operating when this happens, it's really just reorganizing the capital structure, not doing much to actual business operations.
Option two is a true liquidation: the business stops operating, all of its assets are sold, and the proceeds distributed to creditors and then the corporate entity simply ceases to exist.
The original debate about the "corporate death penalty" arose from how Arthur Anderson was treated in the wake of the Enron scandal. In that case, AA was criminally indicted. A criminal conviction is a huge problem for a public accounting firm, because convicted felons can't be CPAs or audit public companies. Indeed, it was ultimately convicted and barred by the SEC from auditing public companies. But it actually collapsed far before that, basically immediately after the indictment, as all of its clients saw the writing on the wall and dropped them. This was an option 2 liquidation.
Personally, I would only consider an option 2 liquidation the "corporate death penalty". In the case of your friend in the railroad business, it's probably not the socially optimal outcome because you would actually get more money for the victims through an option 1 reorganization than option 2 liquidation. In general that's why option 2 should be sparingly applied: it reduces the resources available to compensate victims, and inflicts collateral damage on employees, vendors, and customers who mostly didn't do anything wrong.
In addition to option 1 and option 2, some people also consider simply indicting a corporation as the "corporate death penalty" because of how in the case of Arthur Anderson, the criminal indictment did pretty much immediately cause option 2. I think that that position is not really consistent with the facts, however. There are at least 54 publicly traded companies that received criminal convictions between 2001 and 2010; 37 of them were still around in 2013, only 5 failed, and of the 5 it doesn't really seem like the conviction had much to do with their demise[0].
[0] https://scholarship.law.upenn.edu/cgi/viewcontent.cgi?articl...
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