On the other hand, the US system is supposed to be more debtor-friendly, where the courts play a significant role in the restructuring of the distressed company (Bourguignon & Pleskovic, 2007). In the US, bankruptcy is managed under the Bankruptcy Code, formed by the Bankruptcy Reform Act of 1978. Under this Act, a company could be restructured and reorganized or else liquidated. A financially distressed company can get protection from the creditors under the Chapter 11 of the Bankruptcy Code. The company can then attempt to rise above its financial hardships and also sort out the payments to its various creditors. Conversely, if the company files under Chapter 7 of the Bankruptcy Code, the assets of the company are liquidated and the proceeds are allocated to the creditors. The major trade-off in the bankruptcy act is between providing protection to a distressed company and ensuring bondholders with adequate security to extend credit. Providing protection to the financially distressed company from its creditors and helping them to start afresh is an important driver of private enterprises. Many entrepreneurs would not take up the risk of forming a business if they had a possibility of facing unrestricted liability. However, the partial liability cancellations and bailouts of the bankrupt companies hurt the interest of the bondholders because they receive only a fraction of the value actually owed. Many a times, the liquidation of the company’s assets also does not help the creditors to acquire the total amount they owed to the company. This consequently makes the creditors more risk averse and the restructured company finds it difficult to locate investment post its bankruptcy. Therefore, regardless of liquidation, reconciliation of liability claims or Chapter 11, the lenders do not get back what they originally owed to the company (Damodaran, 2005). Answer 2 A company is said to be bankrupt when it is not capable of fulfilling its contractual liabilities. The assets of such a company are generally liquidated and the earnings from the liquidation process are utilized to meet the overdue claims. The cost involved in the process of going bankrupt is obscure and hence difficult to quantify. The legal expenditures involved are known as the direct cost of bankruptcy. These costs occur in the form of cash outflows at the moment of bankruptcy of the company. Therefore, the direct costs of bankruptcy consist of legal as well as administrative expenditures and also the interest payments for the payment of the overdue cash flows. However, the major part of the bankruptcy cost takes place prior to the company’s bankruptcy declaration. The direct costs of bankruptcy of large companies are considerably small considered to their indirect costs of bankruptcy. When the suppliers, the buyers, the consumers and also the
Value. Bankruptcy. Investment Price. Table of Contents Answer 2 4 Answer 3 6 References 9 Answer 1 A company that is incapable of fulfilling its contractual obligations and fails to make the payments to its creditors generally files bankruptcy protection at the court…
The research centers on the responsibility of the debtors in a Chapter 11 bankruptcy and reorgnisation process. The research deals with the required acts of the creditors in a Chapter 11 Bankruptcy and reorgnisation proceeding. The main purpose of the essay is to show convincing evidence that the Chapter 11 Bankruptcy and reorgnisation law can successfully breath new revenue-enhancing life to once unprofitable companies.
When it comes to product innovation, no business is far behind. Even the financial markets have been a domain of product innovations in the recent past. One such innovation in the highly lucrative financial markets is The Hedge Funds. Hedge Fund refers to “an aggressively managed portfolio of investments that uses advanced investment strategies such as leveraged, long, short and derivative positions in both domestic and international markets with the goal of generating high returns (either in an absolute sense or over a specified market benchmark).” (Investopedia, 2011) The nature of Hedge Fund is different from many other investment setups.
From an individual's point of view, if he or she declares bankruptcy the court of law discharges the debt or repays the debt after selling the property or makes an appropriate plan to repay the debt. From the company's perspective, if the company files bankruptcy protection in the court of law then the court assign an agent to the company, who arranges payments to repay the debt through different modes or ceases the business operations and auctions off their asstes and property.
The term common stock has no precise meaning. It usually is applied to stock that has no special preference either in dividends or in bankruptcy. Owners of common stock in a corporation are referred to as shareholders or stockholders. They receive stock certificates for the shares they own.
Simply speaking credit crunch means an economic crisis when banks are very cautious about lending money to customers or each other. It is a situation where there is excess demand for credit on the prevailing interest rates. One can also interpret credit crunch as a situation when credit is rationed because of factors other than price mechanism.
The owners of the business are called shareholders because they hold shares of ownership and "share" in the business' profits. Shareholders hire managers who run the business and who, as part of their jobs, make strategic and tactical marketing decisions.
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On 14th September 2008, 158 year old investment bank Lehman Brothers Holdings which was basically a global financial service provider became bankrupt, shaking the entire financial industry. There are various
The two categories engross the five bankruptcy types: chapter7-Liquidation, chapter 13-individual debt adjustment, chapter 11-reorganisation, chapter 12-Family farmer, and chapter 9- municipality (Distenfield, 2005, p. 47). All five chapters are distinct as each