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Running Head: Bankruptcy, Foreign Currencies Transactions, Interim and Segments Reporting and the Nonprofit and the Governmental Accounting 0

Bankruptcy

Name

Southern New Hampshire University

November 14, 2019

Differentiate between various forms of bankruptcy and restructuring that the firm should understand.

Summarize the key points of interest if the firm fell on hard times and had to file voluntary bankruptcy. What ethical implications should be considered when debating whether or not to file bankruptcy?

The way by which a company may go out of business or recover from a huge debt is governed by the federal bankruptcy laws. In chapter 7 of the bankruptcy code, the company may choose to stop all its business operations and go out of business, or, the company may choose to use the chapter 11 of the Bankruptcy code to restructure itself and go back to normal business operations. By using the chapter 7 of the bankruptcy code which involves stopping all the company’s business operations, the company goes into what is referred to as voluntary bankruptcy. Voluntary bankruptcy involves the company filing a petition to the court to declare the company bankrupt as the company is able to accomplish its debt obligations to the creditors. However, the petition to declare the company bankrupt may rejected by the court upon establishing that the actions of this petition may have a detrimental on the creditors. Upon qualifying for voluntary bankruptcy, the company, which is the debtor, is relieved from the debts owed to creditors and any actions by the creditors against the debtor are stopped.

Certain ethical implications should be considered while debating on whether to file a bankruptcy or not. Running an insolvent company which is continually taking debts from creditors is unethical. The actions is unethical as it will lead to wastage of finances from the creditors’ side as the company cannot meet its debt obligation. Therefore, the ethical implication that should be considered before filing for bankruptcy are based on what is good for both the interest of the company and the its stakeholders. Upon establishing that the continual existence of the company will lead to more losses which means that the interests of creditors together with other stakeholders are at stake, it is ethical to file for bankruptcy.

Identify the key areas of concern if the firm fell on hard times and their creditors forced them into bankruptcy. What defenses are available in this situation?

When companies are experiencing hard times, creditors may force them into bankruptcy regardless of their consent. However, certain aspects must be met to force a company into an involuntary bankruptcy. Section 303 of the bankruptcy code identifies the major requirements that need to be followed to allow for an involuntary bankruptcy. One of these requirements is the minimum number of creditors that are needed to force a company into an involuntary bankruptcy. In the situation where a company, the debtor, has less than 12 creditors the minimum number of creditors needed to file for an involuntary bankruptcy is one. On the other end, for companies with more than 12 creditors, the minimum number of creditors needed to file an involuntary bankruptcy are 3 creditors. Also, the debtor company must not be in a position to pay debts as they fall due (Eisenbach, 2012). Also, for a company to go into involuntary bankruptcy, the company must be aware of the debts owed to creditors and must not be questioning the validity of the debts owed.

3. Illustrate hypothetical calculations that would be done to help creditors understand how much money they might receive if the company were to liquidate. Ensure all information is entered accurately. Please refer to the illustration (Exhibit 13.2) on page 592 from your textbook to view potential calculations.

Refer to excel spreadsheet.

Reference

Eisenbach, B. (2012). Forced Into Bankruptcy: The Involuntary Bankruptcy Process. Retrieved November 14, 2019, from https://bankruptcy.cooley.com/2012/05/articles/business-bankruptcy-issues/forced-into-bankruptcy-the-involuntary-bankruptcy-process/.