Liquidation

Liquidation - Click to edit Master subtitle style...

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Unformatted text preview: Click to edit Master subtitle style Bankruptcy, Reorganization, and Liquidation USC Dr. Bemis Economic factors Financial factors Neglect, disaster, and fraud Other factors Causes of Business Failure Worldcom, Inc Telecommunications 103.9 Billion July, 2002 Enron Corp Energy Trading 63.4 Billion December, 2001 Conseco, Inc Insurance 61.4 Billion December, 2002 Pacific Gas & Electric Energy 29.8 Billion April, 2001 Delta Air Lines Airline 21.8 Billion September, 2005 UAL Corp. Airline 25.2 Billion December, 2002 Large Bankruptcies Although bankruptcy is frequent among smaller firms, large firms are not immune Which size of firm is prone to business failure? Maintain viable suppliers Avoid disrupting local communities Preserve jobs Maintain its role as a competitor (US Auto makers) Why do governments and industry seek to avoid failure among larger firms? In the case of banks, governments would want to prevent the erosion of confidence and a consequent run on the banks. Is the firms inability to meet scheduled debt payments a temporary cash flow problem or is it a permanent problem caused by asset values fallen below debt obligations? If the problem is a temporary one, then an agreement with creditors that gives the firm time to recover and to satisfy everyone may be worked out. Issues Facing a Firm in Financial Distress If the basic long run asset values have truly declined, then economic losses have occurred. In this event, who should get whatever value remains? Would the business be more valuable if it were maintained and continued in operation or if it were liquidated and sold off in pieces? Issues Facing a Firm in Financial Distress Should the firm file for Bankruptcy or should it try to use informal procedures? Issues facing a firm in Financial Distress Both reorganization and liquidation can be accomplished either informally or under the direction of a bankruptcy court. Need to determine if the problem is temporary/financially viable or a permanent problems exists that endangers the firms life....
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