Question

1) Which of the following is NOT true regarding the application of the Absolute Priority Rule in the distribution of liquidation distributions?

a) Secured creditors are not on the APR list as they are entitled to the proceeds from the sale of the secured assets.

b) if an asset is sold and the proceeds are more than required to pay the secured creditors, the remainder of the funds go to pay unsecured creditors.

c) If an asset is sold and the proceeds are insufficient to pay the secured creditors, the remainder of the claim becomes an unsecured claim.

d) Negotiation can alter the order in the APR

e) The APR order is strictly followed in all bankruptcies to the extent that claimants not on the APR list are not entitled to any distribution from the liquidation.

2) Which of the following is correct?

a) A bankruptcy petition can only be filed by the firm itself.

b) The APR order is strictly followed in all bankruptcies to the extent that claimants not on the APR list are not entitled to any distribution from the liquidation.

c) Management of the firm is usually not permitted to continue to manage the firm in bankruptcy.

d) A frim can be forced into bankruptcy by its creditors or can voluntarily file bankruptcy itself.

e) A bankruptcy petition can only be filed by a firm's creditors.

3) The approval of a bankruptcy plan by the major creditors of a firm in advance of a legal filing is called a:

a) prepacked bankruptcy

b) forced bankruptcy

c) debtor-in-possession bankruptcy

d) Preplanned Bankruptcy

e) Involuntary Bankruptcy

4) The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 included all the following changed to or effects on the bankruptcy process EXCEPT:

a) More prepackaged bankruptcies are expected.

b) After 18 months, creditors may file a reorganization plan of their own.

c) BAPCPA permits large payments to retain key employees.

d) Firms operating under Chapter 11 are no longer the only firms permitted to file reorganization plans

e) Debtor-in-possession financing is no longer permitted

5) A Section 363 Bankruptcy has all of the following Characteristics EXCEPT:

a) Plan must be approved by a vote of interested parties,

b) A stalking-horse initial bidder.

c) Auction-like quality.

d) Simplicity

e) Speed

6) Direct Bankruptcy costs can include all of the following EXCEPT:

a) Consultant expenses

b) loss of important customers

c) general administrative expenses

d) accounting fees

e) legal fees

Answer 1

Q1.

e) is the correct answer as secured creditors are not on the APR list as they are entitled to the proceeds from the sale of the secured assets. Secured creditors always have an upper hand over unsecured ones as they except lower return as compared to unsecured creditors. Other than this negotiation can be done depending on approvals

Q2

d) is the correct answer as frim can be forced into bankruptcy by its creditors and by itself. It is specifically mentioned in the law, as allowing any one person would a great disadvantage to others. Therefore a) and e) automatically becomes wrong, for b) reason stated in Q1 shows this cannot be true and lastly for c), management generally manages the co. and a liquidator is appointed to keep a check and perform liquidation work.

Q3

e) Involuntary Bankruptcy

Q4.

e) is correct as all above point are included in BAPCPA act of 2005 except e), as DIP financing is allowed under the act after relevant approvals if required.

Thanks