Transactions with creditors - Asset Partitioning and agency problems - Creditor-creditor coordination and agency problems

4 important questions on Transactions with creditors - Asset Partitioning and agency problems - Creditor-creditor coordination and agency problems

What is the difference between liquidation procedures and reorganization procedures?

Liquidation procedures: geared towards a sale of the firm's assets by auction

Reorganization (or rescue) procedures: seek to facilitate renegotiation of the firm's obligations to its creditors

What is "insolvency law"?

Insolvency law: the law should block owners from having access to the equity at a time when a firm defaults.
- Creditors get owner powers

Which coordination problems presents itself regarding the insolvency law?

If the creditors act individually this will lead to the breaking up of the firm.
- This is inefficient if the firm as a whole is worth more than broken up. Then it will be wise to work together and restructure the firm's debts
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What is the core function of bankruptcy law?

Prevent creditors to enforce individually (for they have an incentive to do so).

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