Which one of the following statements is correct?
A)A prepack is a plan of liquidation used to distribute a firm's assets.
B)Bankruptcy courts have "cram-down" powers.
C)The absolute priority rule must be strictly followed in all bankruptcy proceedings.
D)Creditors cannot force a firm into bankruptcy even though they might like to do so.
E)A reorganization plan can be approved only if the firm's creditors all agree with the plan.

Question

Quizplus · Accepted Answer

Bankruptcy courts do have "cram-down" powers, which enable them to approve a reorganization plan even if some creditors do not agree with it. This allows for a more efficient resolution of a firm's bankruptcy case. However, the use of cram-down powers is subject to certain legal requirements and limitations. The other statements are incorrect: (A) a liquidation plan is not the same as a prepack (pre-packaged bankruptcy); (C) the absolute priority rule is not always strictly followed in bankruptcy proceedings, as there are some exceptions and alternatives to it; (D) creditors can file an involuntary bankruptcy petition against a firm if they meet certain requirements; (E) a reorganization plan can be approved by the court even if not all creditors agree, as long as the plan meets the legal criteria for confirmation.

Which One of the Following Statements Is Correct