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Xu Che

Xu Che. Concept. Bankruptcy is a legal status of a person or organization that cannot repay the debts it owes to creditors. Liabilities exceed Assets Negative Equity. Causes of Bankruptcy. External business conditions Internal business conditions Severe monetary problems.

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Xu Che

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  1. XuChe

  2. Concept • Bankruptcy is a legal status of a person or organization that cannot repay the debts it owes to creditors. • Liabilities exceed Assets • Negative Equity

  3. Causes of Bankruptcy • External business conditions • Internal business conditions • Severe monetary problems

  4. What are their choices? Bankruptcy Law • Chapter 7- Liquidation for individual and businesses • Chapter 11- Reorganization • Chapter 13- Personal

  5. Chapter 7- Liquidation • The company stops all operations and goes completely out of business. • Collateral Assets serves as protection for a lender against a borrower’s default. • Remaining Assets are liquidated

  6. Order of Payments 1. Secured creditors- collateral 2. Unsecured creditors - employees, suppliers, banks, government (taxes) and bondholders 3. Stockholders - preferred stock holders and common stock holders

  7. Chapter 11- Reorganization • Company still run business and control the bankruptcy process. • Voluntary or Involuntary A corporation which continues to operate its business under chapter 11 bankruptcy proceedings is a debtor-in-possession.

  8. Reorganization Plan Federal Court will appointone or more committees to represent the interests of creditors and stockholders in working with the company to develop a plan of reorganization to get out of debt. • A Vote on the plan • 2/3 groups say Yes- Pass • Cancel the existing equity shares

  9. Results of Restructure • Success - reshaping the company into a profit entity • What if it fails? - Chapter 7

  10. Guessing… • How many firms filed Chapter 11 from Year 1993 to 2007? • 521 • 821 • 1221 • 1621 • How many firms emerging from bankruptcy as public companies during this period? • 216 • 516 • 816 • 1216

  11. Number of firms filed / Number of firms successfully restructured =8 : 1

  12. Summary • Bankruptcyis a legal status of a person or organization that cannot repay the debts it owes to creditors. • Three main causes of Bankruptcy • Chapter 7- Liquidation -Order of payment • Chapter 11- Reorganization

  13. Questions?

  14. Reference • “Emerging from Bankruptcy with When-Issued Trading,” Raymond M. Brooks and J. Jimmy Yang Financial Review (The), vol. 47, pp. 445-467, (Aug 2012) • http://www.morebusiness.com/running_your_business/profitability/Business-Bankruptcy.brc • http://www.sec.gov/investor/pubs/bankrupt.htm • http://en.wikipedia.org/wiki/Debtor_in_possession • http://www.totalbankruptcy.com/overview/basics/chapter7-chapter13-comparison.aspx • http://en.wikipedia.org/wiki/Bankruptcy#United_States • http://www.economist.com/node/13782942

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