Suppose that a bankrupt firm, while in the process of developing a reorganization plan, is allowed to buy goods on credit and borrow money to finance needed working capital. Such an arrangement is called
A)debtor-in-possession financing.
B)prepack bankruptcy.
C)workout by creditors.
D)appointment of receiver.

Question

Quizplus · Accepted Answer

This arrangement is called debtor-in-possession financing, which allows a bankrupt firm to continue operating and developing a reorganization plan while obtaining financing for working capital. This financing is typically secured by the assets of the bankrupt firm and is subject to court approval. Prepack bankruptcy refers to a situation where a bankrupt firm already has a reorganization plan in place before filing for bankruptcy. Workout by creditors refers to a situation where a group of creditors negotiate with a debtor outside of bankruptcy court to restructure their debt. Appointment of receiver refers to the appointment of a third party to take control of a bankrupt company's assets and distribute them to creditors.

Suppose That a Bankrupt Firm, While in the Process of Developing