Chapter 27.docx

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Department
Accounting & Financial Management
Course
AFM 231
Professor
Sally Gunz
Semester
Spring

Description
Chapter 27Bankruptcy and InsolvencyDebtor Options1Informal Steps Find a way maybe using a third party to come to a negotiated settlementaAll creditors must agree2If unsuccessful proceed to prebankruptcy actions3Seek a trustee in bankruptcy an officer assigned legal responsibility for administering the affairs of the bankrupt corporation or individualsaTrustees will accept a client based on whether there is not a conflict of interest and where the clients have sufficient assets to pay for the trustees servicesbIf debtor cannot find a trustee they are forced to proceed to some form of debt counselling services4A trustee begins by assessing the estate all the assets of the bankrupt individual They prepare a pseudobalance sheet5A firm is declared insolvent unable to meet financial obligations as they become due or having insufficient assets to meet obligations ifaOwes more than 1000 ANDbIs unable to meet financial obligations ORcHas ceased paying obligations as they become due ORdHas insufficient assets to meet obligations6If the business wishes to operate the owner of the business must make a proposal to creditors A proposal is a contractual agreement between the debtor and the creditors that allows an insolvent debt to reorganize and continue in business7 An alternate is to rearrange under the Companies Creditors Arrangement Act CCAA for companies that have debts over 5 million and have considerable impact on the business communityaCCAA prevents creditors from pursuing their normal remedies during the reorganization period8Both paths 67 allow the debtor to seek new bank financing debtorinpossession or DIP funding to cover wages and other operating expenses during the period of bankruptcy protection
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