5. Understanding reorganization in bankruptcy Chapter 11 of the Bankruptcy Act has several features that can help a firm that is in financial distress. than the absolute priority doctrine. The relative priority doctrine gives a more balanced The relative priority doctrine is more consideration to all claimants. Filing for bankruptcy under Chapter 11 requires the debtor to submit a reorganization plan to the bankruptcy court. The court's responsibility is to scrutinize the proposed plan of reorganization. The court checks if the plan is fair and feasible. Arjen Corp. filed for bankruptcy protection under Chapter 11. The following table describes certain actions the company plans to take as a part of its reorganization plan. Arjen submitted the plan to the bankruptcy court. Determine whether the actions described comply with the bankruptcy code, and select the option identifying whether the bankruptcy court will consider or disregard the action in the plan based on the grounds of fairness and feasibility. Will the Court Consider This Action? Yes No Description Arjen's current management takes complete responsibility for the company's financial disaster. The board of directors appoints a new management team to take control of the company during reorganization. o o Arjen's reorganization plan includes reduction in payroll costs expected to come from negotiations with labor unions to accept lower wages and less restrictive work rules. o o To avoid additional capital investment and to keep operating costs low, Arjen will continue to use old and obsolete inventories and push sales of these inventories. o o get to control the firm during the bankruptcy proceedings. Grade It Now Save & Continue Continue without saving