Why Would Creditors Be Willing to Give a Portion of What

question 83

Multiple Choice

Why would creditors be willing to give a portion of what they are owed by the debtor firm for equity in the reorganized firm?

• A) They are legally obligated to do so under U.S. bankruptcy law.
• B) Ownership in a firm is inherently more valuable than being a creditor.
• C) The value of the stock may in the long run far exceed the amount of debt the creditors were willing to forgive.
• D) Creditors understand that they can sue the firm at a later date for what they are owed.
• E) None of the above.

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Definitions:

Equitable Damages

Compensation awarded by courts for losses or harm that cannot be quantified by monetary standards alone, seeking to restore the injured party to their original position.

Executory Contracts

Agreements between parties that have yet to be fully performed or executed by one or more of the parties involved.

Conditional

Dependent on certain conditions or requirements being met before full effect or enforcement.

Partial Performance

An exception to the statute of frauds in which the performance of portions of an unwritten agreement by one or both parties can constitute proof that an oral contract exists between the parties.