Question 1

In the Matter of Kmart Corp., where some creditors objected to the bankruptcy judge decision that "critical vendors" were to be paid first so that the store might stay in business, the appeals court held that the decision of the bankruptcy judge was:

Accepted Answer

The appeals court held that the decision to prioritize payments to "critical vendors" first was improper because it violated the structured payment schedule outlined in the Bankruptcy Code, which dictates the order in which creditors should be paid during the bankruptcy process.

Question 2

In most Chapter 11 bankruptcies, the ____ operates the "reorganized" business.

Accepted Answer

In most Chapter 11 bankruptcies, the debtor, not an external party, operates the "reorganized" business. This allows the business to try to become profitable again under its own management with the court's oversight, rather than being operated by a county agent, creditor, court-appointed official, or an impartial third party.

Question 3

The powers of a debtor in possession are balanced by:

Accepted Answer

The term "debtor in possession" is specific to bankruptcy proceedings, particularly in the context of Chapter 11 reorganizations in the United States. A debtor in possession (DIP) retains control of assets and operates the business under the oversight of the court. The options provided (A, B, C, D) do not accurately reflect entities or committees that balance the powers of a debtor in possession. The correct oversight and balancing mechanisms involve the bankruptcy court, U.S. Trustee, creditors' committees, and specific statutory requirements, none of which are listed as choices. Therefore, the correct answer is E, as the provided options do not accurately represent the entities that balance a debtor in possession's powers.

Question 4

Most companies that file Chapter 11 bankruptcies have assets worth:

Accepted Answer

Most companies that file Chapter 11 bankruptcies have assets worth less than $1 million.

Question 5

Brandon files for a Chapter 11 bankruptcy on behalf of his company, Brandon's B-B-Q. The company is allowed to continue its operations. During this period Brandon is:

Accepted Answer

In a Chapter 11 bankruptcy, the debtor typically remains in control of the business as a "debtor in possession," not as an "official in possession" or "guarantor in extremis."

Question 6

Every year approximately ____ businesses use a Chapter 11 bankruptcy.

Accepted Answer

The number of businesses filing for Chapter 11 bankruptcy annually is significantly lower than any of the figures provided in options A through D. Typically, the number is in the range of 10,000 to 15,000, far less than the lowest number listed here, 100,000.

Question 7

In the Matter of Kmart Corp., where some creditors objected to the bankruptcy judge decision that "critical vendors" were to be paid first so that the store might stay in business, the appeals court held that the decision of the bankruptcy judge was:

Accepted Answer

The appeals court held that the record did not show the prospect or benefit to the other creditors, which is necessary to allow the preferential payment of one class of creditors, and thus the critical-vendors order could not stand.

Question 8

In most Chapter 11 bankruptcies, the ____ operates the "reorganized" business.

Accepted Answer

In most Chapter 11 bankruptcies, the debtor operates the "reorganized" business as a "debtor in possession," maintaining control of the business assets and operations while reorganizing under the bankruptcy laws.

Question 9

The powers of a debtor in possession are balanced by:

Accepted Answer

The powers of a debtor in possession are balanced by the creditor's committee, which is composed of representatives of the creditors and oversees the debtor's actions. The committee has the power to approve or reject major decisions made by the debtor, ensuring that the creditors' interests are protected.

Question 10

The difference between the value of a business as a going concern compared with what is collected from selling the assets of the company is known as a:

Accepted Answer

The difference described does not match the definition of any of the given terms, indicating that none of the provided choices are correct. This difference is typically referred to as "goodwill" in accounting, which is not listed among the options.

Question 11

The surplus that the creditors hope to capture by allowing the business to remain in operation so that they have a greater chance of full repayment is called:

Accepted Answer

The term described is not commonly recognized in financial or business terminology, hence none of the provided options accurately define a known concept related to creditors allowing a business to remain operational for better repayment chances.

Question 12

The surplus that the creditors hope to capture by allowing the business to remain in operation so that they have a greater chance of full repayment is called:

Accepted Answer

The going concern surplus is the surplus that creditors hope to capture by allowing the business to continue operating so that they have a better chance of being fully repaid. This surplus is often greater than the surplus that creditors would receive if the business were to be liquidated immediately. Therefore, the best choice is A) going concern surplus.

Question 13

In the Matter of Kmart Corp., where some creditors objected to the bankruptcy judge decision that "critical vendors" were to be paid first so that the store might stay in business, the appeals court held that the decision of the bankruptcy judge was:

Accepted Answer

The appeals court held that the decision was improper because it violated the Bankruptcy Code's priority scheme, which does not allow for preferential treatment of certain unsecured creditors over others without specific statutory authority.

Question 14

An advantage of a well-planned Chapter 11 bankruptcy, compared to liquidation, includes:

Accepted Answer

The answer of An advantage of a well-planned Chapter 11...

Question 15

Most companies that file Chapter 11 bankruptcies have assets worth:

Accepted Answer

Chapter 11 bankruptcies can involve companies of various sizes, from small businesses to large corporations, with assets ranging widely in value. There is no specific asset value threshold that applies to all Chapter 11 filings, making none of the other choices universally correct.

Question 16

Every year approximately ____ businesses use a Chapter 11 bankruptcy.

Accepted Answer

Approximately 10,000 businesses file for Chapter 11 bankruptcy each year.

Question 17

In the Matter of Kmart Corp., where some creditors objected to the bankruptcy judge decision that "critical vendors" were to be paid first so that the store might stay in business, the appeals court held that:

Accepted Answer

The appeals court held that the record did not demonstrate the necessary prospect or benefit to the other creditors that would justify the preferential payment of the "critical vendors," leading to the conclusion that the critical-vendors order could not stand.

Question 18

Refer to Fact Pattern 12-1. When Fidelity was deciding whether or not to lend Gena money, which of the following resources could it have possibly used?

Accepted Answer

Fidelity could have used any or all of these resources to help them make a decision about whether or not to lend money to Gena. The pasta maker's trade association may have provided additional information about Gena's business, while her financial statements and records of previous transactions with other banks would provide insight into her creditworthiness. Reports from credit agencies would also provide critical information about Gena's credit history and ability to repay the loan.

Question 19

The difference between the value of a business as a going concern compared with what is collected from selling the assets of the company is known as a:

Accepted Answer

The difference between the value of a business as a going concern and the proceeds obtained from liquidating its assets is referred to as going concern surplus. This amount is the value that is created by maintaining the company as a going concern and is, therefore, a measure of the company's intrinsic value or enterprise value.

Question 20

Brandon files for a Chapter 11 bankruptcy on behalf of his company, Brandon's B-B-Q. The company is allowed to continue its operations. During this period Brandon is:

Accepted Answer

The answer of Brandon files for a Chapter 11 bankruptcy...

Quiz 13: Negotiable Instruments, Credit, and Bankruptcy

In the Matter of Kmart Corp., where some creditors objected to the bankruptcy judge decision that "critical vendors" were to be paid first so that the store might stay in business, the appeals court held that the decision of the bankruptcy judge was:

In most Chapter 11 bankruptcies, the ____ operates the "reorganized" business.

The powers of a debtor in possession are balanced by:

Most companies that file Chapter 11 bankruptcies have assets worth:

Brandon files for a Chapter 11 bankruptcy on behalf of his company, Brandon's B-B-Q. The company is allowed to continue its operations. During this period Brandon is:

Every year approximately ____ businesses use a Chapter 11 bankruptcy.

In the Matter of Kmart Corp., where some creditors objected to the bankruptcy judge decision that "critical vendors" were to be paid first so that the store might stay in business, the appeals court held that the decision of the bankruptcy judge was:

In most Chapter 11 bankruptcies, the ____ operates the "reorganized" business.

The powers of a debtor in possession are balanced by:

The difference between the value of a business as a going concern compared with what is collected from selling the assets of the company is known as a:

The surplus that the creditors hope to capture by allowing the business to remain in operation so that they have a greater chance of full repayment is called:

The surplus that the creditors hope to capture by allowing the business to remain in operation so that they have a greater chance of full repayment is called:

In the Matter of Kmart Corp., where some creditors objected to the bankruptcy judge decision that "critical vendors" were to be paid first so that the store might stay in business, the appeals court held that the decision of the bankruptcy judge was:

An advantage of a well-planned Chapter 11 bankruptcy, compared to liquidation, includes:

Most companies that file Chapter 11 bankruptcies have assets worth:

Every year approximately ____ businesses use a Chapter 11 bankruptcy.

In the Matter of Kmart Corp., where some creditors objected to the bankruptcy judge decision that "critical vendors" were to be paid first so that the store might stay in business, the appeals court held that:

Refer to Fact Pattern 12-1. When Fidelity was deciding whether or not to lend Gena money, which of the following resources could it have possibly used?

The difference between the value of a business as a going concern compared with what is collected from selling the assets of the company is known as a:

Brandon files for a Chapter 11 bankruptcy on behalf of his company, Brandon's B-B-Q. The company is allowed to continue its operations. During this period Brandon is: