For priority on claims, see the US Code Title 11 Section 507. The priority for claims against a debtor of wages depends on the time when the bankruptcy was filed or cease of business operations.
• Wage claims 180 days prior to cease of business or bankruptcy has higher priority, but only for up to $10,000 per person.
• Otherwise wages owed will be considered unsecured creditors and will be in a lower priority.
Since, the amount due to the workers were only 90 days prior to the file , their claims are in the lower priority of unsecured creditors.
Involuntary bankruptcy proceedings are filed by the creditors against the debtors who is not been able to pay its debts. Creditors file the petition in the bankruptcy court in order to initiate the bankruptcy proceedings against the debtor.
Involuntary bankruptcy proceedings have been filed against the corporation CCF by its creditors. The net worth of the company is $8,000 using the balance sheet approach i.e. total assets minus total liabilities ($108,000 - $100,000). The cash flow of the company is in negative. Moreover, the company still owes $12,500 to the existing creditors as arrears in payment on bills submitted during the past two months.
A company is deemed to be insolvent in the cases: (i) when the company is unable to pay its debts once the debts become due, and (ii) when the company's total assets is less than its total liabilities.
Under balance sheet approach, the term liabilities has a much broader meaning and includes both contingent and prospective liabilities whether liquidated or unliquidated. In BNY Corporate Trustees Services LTD. V. Eurosail-UK (2013), the English Supreme Court stated that a balance sheet bankruptcy test should rests on "the balance of probabilities, a company has insufficient assets to meet its liabilities, taking into consideration prospective as well as contingent liabilities."
The corporation CCF will not be able to dismiss the creditors' petition because even though the company is solvent according to the balance sheet method the company's will not be able to pay off its debts. The company has a negative cash flow and has unliquidated assets. Therefore, the court will look at the prospective and contingent liabilities of the company and whether the company will be able to pay its debts or not. The company has a current debt of $12,500. The net worth of the company is $8,000. Thus, the corporation CCF does not have sufficient funds to meet its liabilities.
The corporation CCF hence, will not be able to pay off its depts owed to its creditors and therefore, will not be successful in dismissing the creditor's petition. The court is likely to initiate bankruptcy proceedings against the company in order to pay the debts it owes to its creditors.
See Title 11, section 523 of the US Code Exceptions to discharge. These are debts that can't be discharged through bankruptcy. These are usually debts incurred by fraud or malicious intent.
The plaintiff K will need to show that there was fraudulent misrepresentation in order for the debt owed to K not to be discharged in bankruptcy. Furthermore, K will also have to showed that it relied on these fraudulent material made by debtor W. Since there was fraud, the discharge should not be granted if K relied on these financial statements on making credit sales to W.