1. Explain the differences among the following terms related to financial failure:
a. Technical insolvency
b. Legal insolvency
c. Bankruptcy
2. What alternatives are available to the failing firm?
3. Basically, what determines whether a bankrupt company is reorganized or liquidated?
4. In a debt reorganization, explain the difference between a composition and an extension.
5. Explain why an informal settlement may be preferable to declaring bankruptcy for both the failing firm and its creditors.
6. What are the differences between Chapter 7 and Chapter 11 of the Bankruptcy Reform Act?
7. In connection with reorganization plans, what do fairness and feasibility mean?
8. Explain how a firm that has failed can be reorganized to operate successfully.
9. Rank in order of priority (highest to lowest) the following claims on the proceeds from the liquidation of a bankrupt firm:
¦ Taxes owed to federal, state, and local governments
¦ Preferred stockholders
¦ Common stockholders
¦ Expenses of administering the bankruptcy
¦ Secured creditors
¦ Unsecured creditors
¦ Wages in 3 months before bankruptcy (up to $2,000 per employee)
¦ Customer deposits (up to $900 each)
¦ Expenses incurred after the bankruptcy petition is filed and before a trustee is appointed
¦ Contributions to employee benefit plans (up to $2,000 per employee).
Text Book: Contemporary Financial Management By R. Charles Moyer, James McGuigan, Ramesh Rao.