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B. Woods Chapter 17 - Chapter 17 CORPORATE LIQUIDATIONS...

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79 Chapter 17 CORPORATE LIQUIDATIONS, REORGANIZATIONS, AND DEBT RESTRUCTURINGS FOR FINANCIALLY DISTRESSED CORPORATIONS Answers to Questions 1 Equity insolvency occurs when a debtor is unable to pay its debts as they come due. Bankruptcy insolvency occurs when a debtor's liabilities exceed the fair value of all assets. 2 No. Title 11 of the U.S. Code reflects the entire Bankruptcy Act of 1978 and has eight chapters with odd numbers one through fifteen. A Title 11 case is any case under the federal bankruptcy laws whereas a Chapter 11 case is a reorganization case that is filed under Chapter 11 of the Bankruptcy Act of 1978. 3 A bankruptcy proceeding is designated voluntary if the debtor corporation files the petition to place itself under the protection of the bankruptcy court and involuntary if creditors file the petition to bring the debtor into bankruptcy court. An involuntary petition may be filed by a single creditor with an unsecured claim of $5,000 or more if there are fewer than twelve unsecured creditors. Otherwise, three or more entities with unsecured claims totaling at least $5,000 must file in order to commence an involuntary case. The requirements are the same for Chapter 7 and Chapter 11 cases. 4 No. The 1978 Bankruptcy Act does not use the term "bankrupt" in relation to a debtor, but Chapter 7 cases usually result in liquidation and Chapter 11 cases usually anticipate reorganization. There are exceptions, however, because a Chapter 7 case may be dismissed or transferred to Chapter 11 for rehabilitation and a case may be liquidated under Chapter 11 or transferred to Chapter 7 for liquidation. 5 The duties of the U.S. trustee are to maintain and supervise a panel of private trustees eligible to serve in Chapter 7 cases, to serve as trustee or interim trustee in some bankruptcy cases, to supervise the administration of bankruptcy cases, and to preside over creditor meetings. Bankruptcy judges still supervise cases in districts without U.S. trustees. 6 The debtor corporation in a bankruptcy case has the following duties: (1) to file a list of creditors, a schedule of assets and liabilities, and a statement of the debtor's financial affairs; (2) to cooperate with the trustee so that the trustee may perform his duties; (3) To surrender all property, including books, documents, records, and so on, to the trustee; and (4) to appear at hearings of the bankruptcy court as required.
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80 Corporate Liquidations, Reorganizations, and Debt Restructurings for Financially Distressed Corporations 7 A trustee is not appointed in all Title 11 cases. In Chapter 7 cases a trustee will be elected by unsecured creditors if a majority vote in amount of holders with at least 20 percent of the claims is obtained. Otherwise, an appointed interim trustee serves as trustee. In Chapter 11 cases a trustee is appointed only if deemed necessary by the court, but otherwise, the debtor remains in possession of the estate and performs the duties of a trustee. Within 30 days from the time the court orders
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