FRM Part II · FRM Exam Part II · Distress Symptoms and Remedies
A fund manager holds senior secured bonds of a US manufacturer that has just filed for bankruptcy. The filing states the company will stop operations, appoint a trustee, sell all assets and distribute proceeds to creditors by priority. Which US Bankruptcy Code chapter is this filing under?
The filing is under Chapter 7. Chapter 7 is the liquidation chapter: operations stop, a trustee sells the assets, and proceeds go to creditors by priority. Chapter 11 instead aims to reorganize the business while it keeps operating.
- AChapter 7 liquidationCorrect
- BChapter 11 reorganization
- CChapter 13 individual debt adjustment
- DChapter 15 cross-border recognition
Explanation
Chapter 7 provides for liquidation: a trustee sells the assets and distributes proceeds by priority. Chapter 11 is for reorganization, where the firm usually continues operating. Chapter 13 applies to individuals, and Chapter 15 deals with cross-border cases.
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