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Reply #31: Reorganizational Bankruptcy Makes New Financing Possible [View All]

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JPZenger Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Sep-13-06 01:52 PM
Response to Reply #1
31. Reorganizational Bankruptcy Makes New Financing Possible
There are two main types of business bankruptcy - reorganizational bankruptcy and liquidation bankruptcy. Reorganizational bankruptcy gives a company time to improve their business practices without having creditors force immediate payments.

Reorganizational bankruptcy also is extremely important in obtaining new financing. No one wants to invest in a company that is threatened with bankruptcy, because they could lose everything. However, once bankruptcy is filed, then the old debts are given lower priority. The person who is newly investing money in the company is given preference in the payment of debts. Therefore, if bankruptcy is threatened, then a company often must declare bankruptcy in order to attract new investors.

Hopefully, that is the case, the AAR has a major new investor lined up.
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