BPUB621.2003.Lecture.Slides.3.Bankruptcy

BPUB621.2003.Lecture.Slides.3.Bankruptcy - [3(1...

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Wharton School: Government & Legal Environment of Business - BPUB 621 - Visiting Professor Martin K. Perry [3](1): Characteristics of a Corporation Separate Legal Identity Corporations can own property, make contracts, and BORROW MONEY Liabilities of shareholders are NOT liabilities for the corporation Perpetual Existence Life of the corporation extends beyond the life span of its shareholders Limited Liability for Shareholders Shareholders can only lose the purchase price of the stock Liabilities of the corporation are NOT liabilities for the shareholders Transferable Ownership Value of shares depends on the assets and earning power of the corporation, and NOT on the wealth of any shareholder Stock markets can then evolve because the shares in each corporation are a standardized commodity
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Wharton School: Government & Legal Environment of Business - BPUB 621 - Visiting Professor Martin K. Perry [3](2): Federal Bankruptcy Act (1978) Debtor Corporation voluntarily petitions for bankruptcy Provisions for involuntary petition by creditors are difficult Liquidation: Chapter 7 Trustee is appointed to sell the assets of the corporation (Section 704) Creditors submit claims and Trustee pays the claims based on Priorities What are the Priorities? secured creditors receive their collateral or its value administrative expenses: legal fees and post-petition loans unsecured creditors receive pro rata distribution of their claims shareholders typically receive nothing (unless they contribute new money) Reorganization: Chapter 11 “Debtor in Possession”: existing management retain control over the corporation, have the powers of the trustee (Section 1106 and 1107), and the right to propose a reorganization plan
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Wharton School: Government & Legal Environment of Business - BPUB 621 - Visiting Professor Martin K. Perry [3](3): Automatic Stay (a) All civil actions against the corporation are “stayed” (halted in their tracks) by the petition for bankruptcy (1) filing a case or continuing a case to recover a claim against the corporation (2) enforcement of a judgment against the corporation (3) any act to obtain possession of property of the corporation (6) any act to collect a claim against the corporation (7) setoff any debt owed to the corporation Tort cases and judgments are stayed, just as any case by a creditor (b) Criminal actions are NOT stayed by the petition Corporation must discontinue making interest and principal payments to creditors, judgment or settlement payments, etc. All claims and judgments become bankruptcy claims
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Wharton School: Government & Legal Environment of Business - BPUB 621 - Visiting Professor Martin K. Perry [3](4): Claims in Bankruptcy Claims by creditors: balance due on the debt Debt contracts have “acceleration” clauses which make the balance due immediately upon default of any single payment Claim from a mortgage would be the unpaid principal
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