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SCOPE AND LIMITATION OF THE STUDY

Generally, bankruptcy is the inability of a company to pay its debts as they


become due. Public companies file for protection under the federal
bankruptcy laws when their liabilities or debts exceed the value of their
assets, or they are unable to pay their bills. A bankruptcy filing gives a
company an opportunity to reorganize its business in hopes of returning to
profitability or completely closing down operations and selling off assets
The harsh reality is that almost all businesses that file bankruptcy are
"insolvent" in the most basic sense of that term: they have more debts than
assets. This means that the asset pie is too small, and not everyone will be
paid the amounts to which they are entitled.
Bankruptcy is a process designed to divide up that too-small pie among
creditors and equity holders in the "fairest" way possible under the
circumstances. All creditors and interest holders must file proofs of their
claims or interests that document the basis for their right to distribution from
the company, so that their claims may be "allowed" as valid both as to
nature and amount of the claim.
For allowed claims, the Bankruptcy Code establishes a hierarchy for
payments that takes account of contract rights, state law, and bankruptcy
principles. Those at the front of the line secured and priority creditors
have a decent chance of at least partial recovery. Those at the very end -equity holders -- rarely receive anything.

But these allocations are not set in stone. the debtor and creditors
are permitted to modify the treatment of claims, if the affected
parties consent to the terms of a proposed plan of reorganization.
So, if you think that the company has value worth fighting for (as
opposed to simply writing off losses), then you may want to enter
into negotiations with other constituencies in the case to try to
improve your outcome.

HOW IT AFFECTS INVESTORS


As an investor, you are between a rock and a hard place if your company
faces bankruptcy. Clearly, nobody invests money into a company, whether
through its stock or its debt instruments, expecting the company to declare
bankruptcy. However, when you venture outside of the risk-free realm of
government-issued securities, you are accepting this added risk.
When a company is going through bankruptcy proceedings, its stocks and
bonds usually continue trading, albeit at extremely low prices. Generally, if
you are a shareholder, you will usually see a substantial decline in the value
of your shares in the time leading up to the company's bankruptcy
declaration. Bonds for near bankrupt companies are usually rated as junk.
When your company goes bankrupt, there is a very good chance you will not
get back the full value of your investment. In fact, there is a chance you
won't get anything back.

Bankruptcy, bondholders stop receiving interest and principal payments, and


stockholders stop receiving dividends. If you are a bondholder, you may receive
new stock in exchange for your bonds, new bonds or a combination of stock and
bonds. If you are a stockholder, the trustee may ask you to send back your stock
in exchange for shares in the reorganized company. The new shares may be
fewer in number and worth less. The reorganization plan spells out your rights as
an investor and what you can expect to receive, if anything, from the company."
Basically, once your company files under any type of bankruptcy protection, your
opportunities and rights as an investor change to reflect the bankrupt status of
the company. While some companies do indeed make successful comebacks
after undergoing restructuring, you need to realize that the risks you accepted
when you invested in the company can become reality. And if your stake in the
company ends up being worth anything in the restructured firm, chances are it

won't be as much as it was when you first entered your position and it won't be in
the same form investors are considered especially low on the ladder. Usually, the
stock of a company proceedings is usually worthless, and investors lose the
money they invested. If you hold a bond, you might receive a fraction of its face
value. What you receive depends on the amount of assets available for
distribution and where your investment ranks on the priority list on the first
page.
Secured creditors have the best chances of seeing the value of their initial
investments come back to them. Unsecured Creditors and shareholders must
wait until secured creditors have been adequately compensated before they
receive any compensation for the loss of their higher-yielding investments.
Because equity owners are last in line, they usually receive little, if anything.

We conducted some interview on these two businesswomen, and gets some


information on how