Purchase Solution

Bankruptcy, Reorganization, & Liquidation

Not what you're looking for?

Ask Custom Question

Is a corporate bankruptcy a legitimate tool to be used by corporate management to enhance the value of the firm? Why do you hold this opinion?

Purchase this Solution

Solution Summary

The solution discusses bankruptcy, recognition and liquidation. In particular it discusses if a corporate bankruptcy is a legitimate tool to be used by corporate management to enhance the value of the firm.

Solution Preview

When a business becomes insolvent (ie. it cannot meet its interest payments due to its creditors), two things may happen: (1) the business may enter into voluntary liquidation bankruptcy or its creditors may force it into liquidation bankruptcy (chapter 7 liquidation bankruptcy); or (2) it may file for bankruptcy protection (chapter 11 reorganization). Under chapter 7, all of the business's assets and debts will be place under the control of a bankruptcy trustee, who well sell the assets in order to pay back the businesses creditors. Under chapter 11, if a business's future cash flows are valued higher than its current assets, a business will be allowed to negotiate a payment plan with its creditors to continue operations.

In both cases, bankruptcy proceedings involve the subrogation of shareholder interests to those of creditors. Shareholders are not given voting rights on any restructuring plan. Typically a business's outstanding shares will be frozen from trading. In a liquidation bankruptcy, shareholders are only entitled to the proceeds ...

Purchase this Solution


Free BrainMass Quizzes
Operations Management

This quiz tests a student's knowledge about Operations Management

Lean your Process

This quiz will help you understand the basic concepts of Lean.

Business Processes

This quiz is intended to help business students better understand business processes, including those related to manufacturing and marketing. The questions focus on terms used to describe business processes and marketing activities.

Paradigms and Frameworks of Management Research

This quiz evaluates your understanding of the paradigm-based and epistimological frameworks of research. It is intended for advanced students.

Balance Sheet

The Fundamental Classified Balance Sheet. What to know to make it easy.