Which of the following statements is most correct? (a) The primary test of feasibility in a reorganization is whether every claimant agrees with the reorganization plan. (b) The basic doctrine of fairness states that all debt holders must be treated equally. (c) Because the primary issue in bankruptcy is to determine the sharing of losses between owners and creditors, the public interest is not a relevant concern. (d) Although a firm is in bankruptcy, the existing management is always allowed to retain control, though the court will monitor its actions closely. (e) To a large extent, the decision to dissolve a firm through liquidation versus keeping it alive through reorganization depends on a determination of the value of the firm if it is rehabilitated versus the value of its assets if they are sold off individually.

Question

Business

Philip

2 March, 08:14

Which of the following statements is most correct? (a) The primary test of feasibility in a reorganization is whether every claimant agrees with the reorganization plan. (b) The basic doctrine of fairness states that all debt holders must be treated equally. (c) Because the primary issue in bankruptcy is to determine the sharing of losses between owners and creditors, the public interest is not a relevant concern. (d) Although a firm is in bankruptcy, the existing management is always allowed to retain control, though the court will monitor its actions closely. (e) To a large extent, the decision to dissolve a firm through liquidation versus keeping it alive through reorganization depends on a determination of the value of the firm if it is rehabilitated versus the value of its assets if they are sold off individually.

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Brian Sheppard · Answer 1

The correct answer is letter "E": To a large extent, the decision to dissolve a firm through liquidation versus keeping it alive through reorganization depends on a determination of the value of the firm if it is rehabilitated versus the value of its assets if they are sold off individually.

Explanation:

Liquidation refers to the termination of an enterprise and the transfer of its properties to the creditor or business owners. The liquidation most frequently happens in the context of a bankruptcy. A bankruptcy trustee must sell the company properties to the creditors and split the proceeds.

The decision of keeping a business against liquidating it will depend on the comparison between the value of continuing operating which relies on the current value the firm has in the market against the value of the individual assets the firm has. Whichever greater will determine if the business will remain open or if it will be closed.