Financial Distress,Restructuring & Reorganisation(BANKRUPCY)

May 30th, 2016
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This topic deals with bankruptcy in private and public companies.

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CHAPTER SIXTEENFINANCIAL DISTRESS RESTRUCTURING AND REORGANIZATIONFinancial distress refers to events preceding and including bankruptcy such as violation of loanscontracts. Two extreme forms of financial distress include:i.Technical insolvency, which refers to a situation where a company is unable to meet itscurrent obligations. This may, be only temporary and subject to remedy.insolvency in bankruptcy which means that liabilities of a company exceed its assets ,thatis, the net worth of the company is negativeii.Other forms of financial distress include.Legal bankruptcy-when a firm files for liquidation under the companies Act(cap 486)Economic failure-Firms revenue insufficient to cover all its cost including cost of capital.Such businesses can continue operating as long as creditors are willing to provide capitaland the owners are willing to accept below market rates of return. Such firms run thedanger that no new capital will be provided when assets wear and need to be replaced.So such firms either close or contract.Business Failure-refers to any business that has terminated operations with a resultantloss to creditors. Thus a business can be classified as a failure to even though it neverenters in to a formal winding process. A business can also close and not be counted asfailure(discounted operations under international Accounting Standards(IAS)14Bankruptcy refers to a state of being unable to pay debts. It can also be defined as

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