Question
In: Finance
What is bankruptcy? What is the difference between liquidation and reorganization? What is the main benefit...
What is bankruptcy? What is the difference between liquidation
and
reorganization? What is the main benefit of reorganization?
Solutions
Expert Solution
Bankruptcy is the name given to the legal proceeding which
occurs when a firm is unable to pay off its debt, unable to pay off
its debt providers and creditors.The federal courts
listen to these cases and part of the assets are sold off to repay
the debtors and creditors. Usually debtors file bankruptcy
proceeding.
The differences between liquidation and reorganization is as
follows
In liquidation the control of firm is no more with the
promoters. The firms assets are sold off to pay the debt holders ,
the preferred stock holders and later the equity holders.
In reorganization the firm can negotiate with the debtors and
creditors regarding the terms of repayment and can also restructure
loans . In this the ownership or control lies with the promoter of
the firm.
Main Benefit of reorganization
1. It helps in retaining the power with the promoter
2 It gives second chance to promoter to improve its operations
without having to sell off to crditors
jeff jeffy answered 1 year agoRelated Solutions
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