FM8e- ch24 - 24 1 CHAPTER 24 Bankruptcy Reorganization and...

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24 - 1 Financial distress process Federal bankruptcy law Reorganization Liquidation CHAPTER 24 Bankruptcy, Reorganization, and Liquidation
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24 - 2 Economic factors industry weakness poor location/product Financial factors too much debt insufficient capital Most failures occur because a number of factors combine to make the business unsustainable. What are the major causes of business failure?
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24 - 3 A large number of businesses fail each year, but the number in any one year has never been a large percentage of the total business population. The failure rate of businesses has tended to fluctuate with the state of the economy. Do business failures occur evenly over time?
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24 - 4 Bankruptcy is more frequent among smaller firms. Large firms tend to get more help from external sources to avoid bankruptcy, given their greater impact on the economy. What size firm, large or small, is more prone to business failure?
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24 - 5 Is it a temporary problem (technical insolvency) or a permanent problem caused by asset values below debt obligations (insolvency in bankruptcy)? Who should bear the losses? Would the firm be more valuable if it continued to operate or if it were liquidated? What key issues must managers face in the financial distress process? (More...)
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24 - 6 Should the firm file for bankruptcy, or should it try to use informal procedures? Who would control the firm during liquidation or reorganization?
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24 - 7 Informal reorganization Informal liquidation Why might informal remedies be preferable to formal bankruptcy? What types of companies are most suitable for informal remedies? What informal remedies are available to firms in financial distress?
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24 - 8 Workout : Voluntary informal reorganization plan. Restructuring : Current debt terms are revised to facilitate the firm’s ability to pay.
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