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 only be approved if the firm's creditors all agree with the plan.

Question

Quizplus · Accepted Answer

Bankruptcy courts do have "cram-down" powers, which means they can force a plan upon parties (such as creditors) who do not agree to it. This power is used to promote efficiency and progress in the bankruptcy process. A prepack (A) is a type of reorganization plan, not a liquidation plan. The absolute priority rule (C) is a principle used in bankruptcy to determine the order of payment to creditors and shareholders, but this rule has some exceptions in practice. Creditors (D) can file a petition to force a firm into bankruptcy, but they cannot do so unilaterally or without meeting specific requirements. Finally, a reorganization plan (E) does not require the agreement of all creditors, but rather, it must be accepted by the required voting majorities and approved by the court.

Which One of the Following Statements Is Correct