Question

 In your judgement is the plan of reorganization a good plan? How do you think the different ‌‌‌‌‌‍‍‌‌‌‌‍‍‍‌‌‍‍‌classes of creditors will vote? In your answer you should consider how a misvaluation by the court will impact creditor recovery rates‌‌‌‌‌‍‍‌‌‌‌‍‍‍‌‌‍‍‌.

Answer 1

In order to prevent the company from filing for bankruptcy, the chapter on bankruptcy code provides for reorganization. The reorganization or restructuring will give the business, an opportunity to turn around the ailing business. It may help changing the top management who may be able to see things differently. So, in my judgement re-organization is a good thing. The creditors who are class A or creditors with collateral will vote against reorganization since they would like to recover their money based on their collateral. The subordinated creditors who have no collateral will vote for the reorganization and hope that the new plan materializes and will help them recover the debt.

A mis-valuation by court can lead to lower recovery rates for the creditors. For example, if the court values the assets of the company at a low rate, then the creditors would get only a small sum of money and will not get all the money due.