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I hear so many public businesses that try to abuse it by filing for bankruptcy with the intent of continuing operating and just "do-away" with their debts... how about if the business files for bankruptcy and some company wants to outright own you (and this will automatically dissolve the board of directors of the bankrupt company) and will be able to own the bankrupt company if they can pay off your debts. This way a failed CEO doesn't keep his cushy job and escape company debts... only to be back again with the same thing...
.. how about if the business files for bankruptcy and some company wants to outright own you (and this will automatically dissolve the board of directors of the bankrupt company) and will be able to own the bankrupt company if they can pay off your debts.
Except that the vast majority of companies that file for bankruptcy have more liabilities than assets, so why would anybody want to do this? They would not.
The liabilities aren't that bad if you can turnaround the company for a profit... I don't like the fact that companies can bankrupt but keep the CEOs employed to keep earning millions of dollars to just go bankrupt again... Perhaps a rule to wipe out the board of directors in the event of bankruptcy... that way bankruptcy isn't overabused as it is now... A lot of times a company goes bankrupt without serious repercussions whereas if a citizen went bankrupt, there is a heavy price... if an employee was making bad decisions and costing you money, they should be fired... CEOs should be no exception...
The liabilities aren't that bad if you can turnaround the company for a profit... I don't like the fact that companies can bankrupt but keep the CEOs employed to keep earning millions of dollars to just go bankrupt again... Perhaps a rule to wipe out the board of directors in the event of bankruptcy... that way bankruptcy isn't overabused as it is now... A lot of times a company goes bankrupt without serious repercussions whereas if a citizen went bankrupt, there is a heavy price...
Firstly, the companies ability to make a profit again is usually directly related to it being able to get rid of some of its debt. Nobody is going to want to come in and satisfy the debt.
Furthermore, why should you, the government, etc have any say in what happens to the board, the CEO, etc? When a company goes bankrupt it is between the company, its owners and the debt holders. The debt holders can object in court to any reorganization plan and can often force the company into Chapter 7 instead of Chapter 11. But if the debt holders are happy with the deal, who cares what you think of it? Who cares what you think of the board, CEO, etc? That is for the owners to decide.
Firstly, the companies ability to make a profit again is usually directly related to it being able to get rid of some of its debt. Nobody is going to want to come in and satisfy the debt.
Well, one method of corporate raiding is gaining capital share in the company for debt satisfaction. Troubled companies are prime targets to be bamboozled by a rich guy who sees profit in the split up assets, or from turning the company around.
If I had the money, I would do the same thing with the currently capsizing company Im at right now. I feel I could probably turn it around in six months, but management has all but given up on it and is trying to sell out. Unfortunatley, this isnt The Secret of My Success, the mail room kid isnt invited in to the board room to lay out his plans for the company.
Well, one method of corporate raiding is gaining capital share in the company for debt satisfaction.
They are not satisfying the debt dollar for dollar, after all if the company was actually worth its debt why would it be going bankrupt in the first place?
They are not satisfying the debt dollar for dollar, after all if the company was actually worth its debt why would it be going bankrupt in the first place?
The assets dont have a book value high enough to satisfy debt.
However, book value isnt always market value, and market value isnt always sale price.
The assets dont have a book value high enough to satisfy debt.
However, book value isnt always market value, and market value isnt always sale price.
No, they don't have enough value. I'm not talking about accounting, potential lenders are going to look at the market value of the assets not whatever they have on their books (which is likely to be higher).
If a company has more assets than debt a bankruptcy judge is unlikely to let the company write off some of its debt. Why would they? The debt holders would be made whole if the company was forced into Chapter 7!
You know guys, it really does not work that way. A company can file either Chapter 7, normally when the liabilities far out weigh the assets or Chapter 11 when normally there is a cash flow issue and debts cannot be paid. In this case normally the assets outweigh the liabilities or the company put forth a plan to the bankruptcy judge to convince them that they can be a viable business plus they have to have to prove that if they proceed into 11, they have financing to go forward.
If the proceedings go to Chapter 7, then the court can order a sale of the assets either to the highest bidder or one that proves to be in the best interest of the creditors.
If Chapter 11, the creditors form a board, all moves by the company must not only be approved by the judge but also the board of creditors. Normally the president, CEO, CFO, etc are changed out to someone acceptable to the board of creditors. All the debts occurred prior to the filling are put on hold, the cash flow (Accounts Receivable) goes straight into the company for operations which allows the company to start new. All agreements, leases, contracts, etc are dissolved unless the company with the BOC approval renews them. After a period of operation and accumulation of capital, normally a company will fill with the court an effort to come out of 11. This offer will include a plan to repay it's creditors, normally with a percentage of stock and cash. It is then up to the board of creditors to approve or not the plan.
This is a very simple explanation but in either case the company IS NOT in charge of its destiny, in Chapter 7, the court is, in Chapter 11, the BOC is.
No, they don't have enough value. I'm not talking about accounting, potential lenders are going to look at the market value of the assets not whatever they have on their books (which is likely to be higher).
Lenders do not determine asset value for purpose of bankruptcy. Lenders are free to make any judgement on the value of assets they wish. Ive witnessed lenders judge asset values everywhere from new purchase price (for obviously used equipment), to their own privately determined salvage value.
Quote:
Originally Posted by user_id
If a company has more assets than debt a bankruptcy judge is unlikely to let the company write off some of its debt. Why would they? The debt holders would be made whole if the company was forced into Chapter 7!
Assets, for purposes of bankruptcies sake, are usually valued by a third party asset valuation firm, or sometimes, even the court itself.
This is not neccessarily market value, and ACTUALLY, for depreciating assets, is likely no more then their salvage value. The only assets that may hold their market value are land and buildings, and depending on the market, they could even appraise at a lower value.
Now, it I wanted to go in and buy that company, and exchange my capital, for its debt, and enough to gain controlling share. I may have just purchased assets, that given some time and the right connections, I could sell for more then what their book value or appraised market value is.
There are corporate raiders who do nothing but this, every single day, and make gobs of money doing it.
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