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Bankruptcy

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Consumer Protection Act 2005. Extended time between discharges ... Credit counseling and debtor education. Bankruptcy Statistics. Bankruptcy Statistics ... – PowerPoint PPT presentation

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Title: Bankruptcy


1
Bankruptcy
  • Ken Bakondi
  • Kara Brausen

2
Bankruptcy
  • Defined
  • History
  • Statistics
  • Chapter 11
  • Chapter 7
  • Questions?

3
Bankruptcy Defined
  • Financial Distress When cash flows are not
    sufficient to meet current obligations
  • Bankrupt When a petition is filed with one of
    nearly 300 Federal Bankruptcy Courts
  • Provides Protection from Creditors
  • Discharge of Debts

4
History of Bankruptcy Legislation
  • 1789 U.S Constitution
  • 1800 First U.S. Bankruptcy Law
  • 1898 - Nelson Act
  • 1938 - Chandler Act
  • 1978 - Bankruptcy Reform Act
  • 1984 Bankruptcy Amendment Act
  • 1986 Chapter 12 "family farmer/fisherman"
  • 2005 Consumer Protection Act

5
Bankruptcy Reform Act of 1978
  • Eliminated even numbered chapters
  • Chapters 1,3,5 General bankruptcy provisions
  • Chapter 7 Personal and Business Liquidation
  • Chapter 9 Municipalities (Orange County)
  • Chapter 11 Business Reorganizations
  • Chapter 13 Personal with Income
  • Chapter 15 Trustees for Administration
  • Chapter 12 Family owned farms (1986)

6
Consumer Protection Act 2005
  • Extended time between discharges
  • Denial of discharge if the debtor received a
    Chapter 7 or 11 discharge in a case filed within
    8 years of the filing of the pending case
  • Chapter 13 instead of Chapter 7
  • Production of tax returns and other documents
  • Audits
  • Credit counseling and debtor education

7
Bankruptcy Statistics
8
Bankruptcy Statistics
Total U.S. Business Filings
9
Bankruptcy Statistics
10
Bankruptcy Statistics
  • Total Assets in all Publicly Traded Company
    Filings between 2001 and 2007?
  • 1,023,100,000,000
  • Total Assets 2 largest filings of 2008?
  • 1,018,976,000,000
  • 2008 Total 1.16 Trillion

11
Largest U.S. Filings
12
General Motors, Corp.
  • http//finance.yahoo.com/q/bs?sGMannual

13
CHAPTER 11 Reorganization
  • intensive care

14
Chapter 11 Key Process Features
  • Voluntary petition
  • Involuntary petition
  • Automatic stay
  • Exclusivity period
  • Debtor-in-Possession financing
  • Absolute priority rule

15
Chapter 11 Process
  • File petition of relief
  • Submit schedule of assets liabilities
  • Bar date
  • Reorganization plan disclosure statement
  • Hearing on reorganization plan
  • Vote on plan
  • Confirmation hearing
  • Set effective plan date distribution schedule

16
Common Pool
  • When individual creditors have the incentive to
    foreclose on the venture even though it is worth
    more as a going concern.

Example Firms Going Concern Value
3,000,000 BV of Debt Owed
4,000,000 Assets Liquidation Value
2,000,000 Return as a Going Concern .75 per
1 of loan Return if Liquidated
.50/1 loaned
17
Holdout Problem
  • When one or more of the creditors refuse to agree
    to reorganization terms because of the potential
    for larger individual recovery.

18
Cram-down
  • Bankruptcy court accepts a reorganization plan
    for all creditors including dissenting creditor
    classes.
  • Groups
  • Employees
  • Consumers
  • Federal/State/Local tax collection agencies
  • Secured Creditors
  • General Creditor Claims
  • Preferred Stockholders
  • Common Stockholders

19
Cram-down Scenario
  • Proposed Plan
  • Employees Compensation Owed up to 2,000
  • Consumers Compensation Owed up to 900
  • Federal/State/Local Taxes Payment Plan
    Structured
  • Secured Creditors Collateral , 2 yr pmt plan
  • General Creditor Claims 1000, remaining 5 yr
    pmt plan
  • Preferred Stockholders Issued New Shares of
    Stock
  • Common Stockholders Issued New Shares of Stock

20
Chapter 11 Success/Failure
21
CHAPTER 7 Liquidation
  • death

22
Chapter 7 Liquidation
  • Accounts for 65 of all business bankruptcies
    filed
  • 90 of Chapter11s end this way
  • 85 of all business bankruptcies result in
    liquidation

23
Chapter 7 Liquidation
  • Liquidation value of assets today exceeds going
    concern value
  • Substantial doubt firm will continue as a going
    concern
  • Prevents management from transferring assets
  • Owners want out

24
Chapter 7 Liquidation
  • Distribution of assets based on absolute priority
    rule
  • Administrative Costs
  • Wages/Unpaid Employee Benefits
  • Consumer Claims
  • Taxes

25
Chapter 7 Liquidation
  • Secured Creditors
  • Unfunded Pension Liability
  • Unsecured Creditors
  • Preferred Stockholders
  • Common Stockholders

26
Questions?
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