沃顿 高级公司理财学Bankruptcy09.pptVIP

Finance 203: Notes on Bankruptcy * Bankruptcy Law Summary Chapter 7: liquidation supervised by trustee Chapter 11: Reorganization and operation under existing management during proceedings Debtors or creditors can petition for bankruptcy Automatic stay: protection from pre-existing creditors Finance 203: Notes on Bankruptcy * Bankruptcy Law Summary(Cont’d) Proceeds distributed according to priority of claims under chapter 7 Chapter 11 reorganizations for firms that are only experiencing short term problems debtor in possession manages firm subject to need for approval for some decisions such as major new investments majority (2/3 rds of value must also be in favor) voting within creditor classes Finance 203: Notes on Bankruptcy * Chapter 11 Reorganizations(Cont’d) all impaired classes including shareholders must vote in favor except those with no obvious valuable claim. Possibility of “cramdown” by the court on dissenting classes: subject to “fairness” tax forgiveness of reduction in creditors claims (would be a taxable source of income outside of bankruptcy) tax loss carry forward less restricted Finance 203: Notes on Bankruptcy * Chapter 11 Reorganizations(Cont’d) Bargaining power of Debtor Debtor in possession has power to operate the firm can run down the firm’s value and reduce value of assets to be distributed to creditors has incentive to take risky projects may not exercise valuable options to invest Finance 203: Notes on Bankruptcy * Chapter 11 Reorganizations(Cont’d) Bargaining power of creditors because their votes are needed creditors with subordinated claims can hold out for violations of absolute priority (Macys) Finance 203: Notes on Bankruptcy * Chapter 11 Reorganizations(Cont’d) Costs of Bankruptcy legal costs of a prolonged proceeding can be high (About 5% of assets in Warner study) value of firm may be run down by poor management Management in Chapter 11 is difficult and cumbersome Major decisions must be approved by the court Difficult