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nkruptcy, or should it try to use informal procedures? ?Who would control the firm during liquidation or reanization? 25 7 Copyright 169。 20xx Harcourt Inc. All rights reserved. ?Bankruptcy is more frequent among smaller firms. ?Large firms tend to get more help from external sources to avoid bankruptcy, given their greater impact on the economy. What size firm, large or small, is more prone to business failure? 25 5 Copyright 169。 20xx Harcourt Inc. All rights reserved. ?Economic factors ?industry weakness ?poor location/product ?Financial factors ?too much debt ?insufficient capital Most failures occur because a number of factors bine to make the business unsustainable. What are the major causes of business failure? 25 3 Copyright 169。25 1 Copyright 169。 20xx Harcourt Inc. All rights reserved. ?Financial distress process ?Federal bankruptcy law ?Reanization ?Liquidation CHAPTER 25 Bankruptcy, Reanization, and Liquidation 25 2 Copyright 169。 20xx Harcourt Inc. All rights reserved. ?A large number of businesses fail each year, but the number in any one year has never been a large percentage of the total business population. ?The failure rate of businesses has tended to fluctuate with the state of the economy. Do business failures occur evenly over time? 25 4 Copyright 169。 20xx Harcourt Inc. All rights reserved. ?Is it a temporary problem (technical insolvency) or a permanent problem caused by asset values below debt obligations (insolvency in bankruptcy)? ?Who should bear the losses? ?Would the firm be more valuable if it continued to operate or if it were liquidated? What key issues must managers face in the financial distress process? (More...) 25 6 Copyright 169。 20xx Harcourt Inc. All rights reserved. ?Informal reanization ?Informal liquidation ?Why might informal remedies be preferable to formal bankruptcy? ?What types of panies are most suitable for informal remedies? What informal remedies are available to firms in financial distress?