Managing Insolvencies

This chapter focuses on insolvency through the company perspective. Insolvency means that a company cannot service its debts on time, and that the total stock of debt that the company owes is greater than the profit that it can earn through future operations. Professor Sachs goes through a scenario in which a company would be insolvent. He goes on to explain liquidation value and bankruptcy law, and how such law has an impact on future financial decisions of a company. Two pathways are allowed by US bankruptcy law: liquidation, or continuation as an ongoing entity with the creditors becoming the new owners of the company (charter 7 or charter 11).

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