When a firm is in a severe financial distress,

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Quizplus · Accepted Answer

While liquidation may be an option, it is not always the best solution as it may result in a loss of value for both the firm and its creditors. Instead, a debt restructuring plan can be worked out with lenders to help the borrower reduce its debt and improve its financial standing. Chapter 11 bankruptcy is also an option, but it should not be the immediate action taken without considering the benefits and costs of other alternatives. The liquidation value may be less than the going-concern value, but this is not always the case and depends on the specific circumstances of the firm.

When a Firm Is in a Severe Financial Distress