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Saturday, November 6, 2010

It is the solved assignment of – “List and explain the objectives of a Bankruptcy Law.” It is the sequence of MB0036 Strategic Management & Business Policy MBA assignments of SMU. You should read these also - A Business Continuity Plan is a Disaster Management Plan and method and elements of a Sales projection.

The USA had many versions of Bankruptcy laws. There was the 1938 Bankruptcy Act, which was followed by amended versions in 1978, 1984 and, lately, in 1994.

Each State has modified the Federal Law to fit its special, local conditions.

Still, a few things – the spirit of the law and its philosophy are common to all the versions. Arguably, the most famous procure is named after the chapter in the law in which it is described, Chapter 11. Following is a brief discussion of chapter 11 intended to demonstrate this spirit and this philosophy.

This chapter allows for a mechanism called “reorganization”. It must be approved by two thirds of all classes of creditors and then, again, it could be voluntary or involuntary.

Chapter 7 (1978 Act) – Liquidation:

A District Court appoints an “interim trustee” with broad powers. Such a trustee can also be appointed at the request of the creditors and by them.

Chapter 11 – Reorganization:

Unless he court rules otherwise, the debtor remains in possession and in control of the business and the debtor and the creditors are allowed to work together flexibly. They are encouraged to reach a settlement by compromise and agreement rather than by court adjudication.

Chapter 10:

In short a legal hybrid, the offspring of chapters 7 and 11:

It allows for reorganization under a court appointed independent manager (trustee) who is responsible mainly for the filling of reorganization plans with the court – and for verifying strict adherence to them by both debtor and creditors.

Despite its clarity and business orientation, many countries found it difficult to adapt to the pragmatic, non sentimental approach which led to the virtual elimination of the absolute priority rule.


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