Cram Down in Bankruptcy Proceedings
February 12, 2025
In the previous article, we have already read about cryptocurrency forks. We now know that a cryptocurrency system is basically software. Just like the software on our phones and laptops cannot stay static, the software responsible for cryptocurrencies cannot stay static either. It needs to be changed from time to time. The changes are done […]
Most firms use both operating leverage and capital leverage to some extent. In today’s business world it is almost impossible to run a business without having some degree of automation and mechanization (operating leverage). It is also not possible to grow at an adequate speed unless the company is taking advantage of borrowed money. However, […]
The concept of banking as a service is revolutionary. This is because banking as a service is a mechanism using which commercial banks can now collaborate with other non-banking entities in order to expand the coverage of their services. Hence, this model has led to a decomposition of the commercial banking value chain. Earlier, all […]
In a previous couple of articles, we have already seen how artificial intelligence is useful in the field of commercial banking. We have also seen the various advantages and disadvantages of deploying artificial intelligence in commercial banking lending. However, it needs to be understood that lending is not the only department in commercial banking that […]
Investors who have been in the market for a long time know that investing is an emotional activity as much as it is a financial activity. This is the reason that people who have a higher degree of self-control generally tend to do better than their peers. Self-control bias may seem like an obvious and […]
After a firm has filed for bankruptcy, the court provides relief against creditors and even further lawsuits. However, this is a temporary situation. According to the court, the next step for the business is to re-organize itself. Now, reorganization is a broad term that could mean different things to different people. There have been bankruptcy cases wherein only the secured creditors have got paid after the reorganization process, and everybody else lost their money. Similarly, there have been cases where none of the creditors lost their money, and even the equity shareholders gained in the form of increases share prices.
The stark differences in the outcomes of bankruptcy cases have perplexed many shareholders. This is the reason why they insist on the debtor organization defining the objectives that they hope to achieve right at the outset. These objectives can be varied and numerous. In this article, we will list down some of the common objectives set by debtor organizations facing bankruptcy.
Some of the objectives behind the reorganization initiated by bankruptcy courts have been mentioned below.
If the bankruptcy is not filed and the reorganization does not happen publicly, then there is always a chance that certain creditors with better connections to the insiders will get paid faster at the expense of everyone else. As soon as the bankruptcy is filed, the court takes control of the cash flow of the debtor company. This means that every penny that leaves the cash flow of the company only does so after the court has verified that it does not harm the needs and vested interests of any existing creditors.
From the creditors’ point of view, achieving fair remuneration for all creditors should be the objective. This fair remuneration should happen regardless of whether the company continues to stay in operation or is sent into liquidation.
The fact of the matter is that creditors nowadays insist that the company declare its reorganization objectives before a plan is created. These objectives have to be measurable. At the end of the exercise, the results are measured with the expectations to check whether or not the exercise was successful.
Your email address will not be published. Required fields are marked *