Question

2) A firm in financial distress that reorganizes through the bankruptcy process:

i) will continue to operate as a going concern throughout the entire process.

ii) must only have the reorganization plan approved by its primary creditor.

iii) cannot issue new securities to either creditors or shareholders.

iv) must file a reorganization plan within 90 days of filing the bankruptcy petition.

v) must abide by the Section 363 provisions of Chapter 11.

Answer 1

2) A firm in financial distress that reorganizes through the bankruptcy process:

i) will continue to operate as a going concern throughout the entire process-TRUE

ii) must only have the reorganization plan approved by its primary creditors-TRUE---if they constitute the required proportion.

iii) cannot issue new securities to either creditors or shareholders--FALSE--- can issue new securities to creditors & shareholders.

iv) must file a reorganization plan within 90 days of filing the bankruptcy petition--FALSE--can take up to 120 days to file the reorganisation plan.

v) must abide by the Section 363 provisions of Chapter 11--TRUE-- if filing Chapter 11 bankruptcy for re-organisation, Sec 363 prohibits the use cash & cash equivalents like negotiable instruments and deposits, without the specific consent of the administering court.