I. When the firm liquidates its assets in bankruptcy, bondholders have priority

Question

I. When the firm liquidates its assets in bankruptcy, bondholders have priority over employees who are owed wages.
II. The absolute priority rule determines how long a reorganized firm is allowed to remain under bankruptcy protection.
III. Chapter 7 Bankruptcy allows the firm to reorganize with provisions to pay creditors while Chapter 11 Bankruptcy deals with the liquidation of the firm.
IV. Technical insolvency occurs when the firm is unable to meet its financial obligations while accounting insolvency happens when total liabilities exceed total assets.

Explanation / Answer

IV. Technical insolvency occurs when the firm is unable to meet its financial obligations while accounting insolvency happens when total liabilities exceed total assets.

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