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Unformatted text preview: C HAPTER 27 B ANKRUPTCY AND I NSOLVENCY Objectives After studying this chapter, you should have an understanding of: the legal aspects of business failure the rights and obligations of debtors and creditors the various stages in the bankruptcy process Learning Outcomes Recognize the options available to creditors and debtors of a financially troubled business (page 665) Recognize the purpose of bankruptcy legislation (page 670) Understand when a debtor and a creditor should agree on a proposal, rather than bankruptcy (page 666) Understand the role of the trustee in bankruptcy (page 665) Understand bankrupts may hide assets through fraudulent preferences and conveyances (page 672) Understand the priority system for payment of debts (page 673) Understand the rights of secured creditors with respect to secured property (page 669) Recognize acts of bankruptcy (page 669) Recognize the impact of committing bankruptcy offences (page 677) Understand the implications of personal bankruptcy (page 676) Chapter Summary A financially troubled business may make a proposal to creditors to reduce the financial pressures and allow the business to continue with the possibility that it may flourish. If the viability of the business seems remote, the secured creditors usually take the assets they are entitled to seize, leaving little if anything, for the other creditors. If there is a dispute among creditors as to the priority among creditors, it is the job of the trustee to evaluate all claims. Bankruptcy legislation establishes the process of bankruptcy to ensure that all creditors are treated fairly in accordance with the Act. Debtors who are facing imminent bankruptcy may try to transfer assets to someone elses name to save them from seizure by the trustee. It is the job of the trustee to review all suspect transactions. Once the trustee is assured that all assets have been accounted for and all debts have been paid in accordance with their priority, the judge may discharge the bankruptcy. The obligation to pay all remaining unpaid debts is extinguished, with the exception of certain personal obligations such as fines, alimony, and student loans. 2008 BY NELSON, A DIVISION OF THOMSON CANADA LTD. PART 8: FINANCING THE BUSINESS Study Outline Use this outline to prepare a complete set of notes for this chapter. Business Failure page 664 ______________________________________________________________________ ______________________________________________________________________ Debtor Options page 665 ______________________________________________________________________ ______________________________________________________________________ Proceedings before bankruptcy___________________________________________ Estate_______________________________________________________________ Insolvency___________________________________________________________ Proposal_____________________________________________________________...
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