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7. Liquidations in bankruptcy Whin a business is worth more if its assits are sold than if it continues to operate, then the business is

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7. Liquidations in bankruptcy Whin a business is worth more if its assits are sold than if it continues to operate, then the business is ilquidated, and the proceeds from the saln are used to atisfr any outstanding debt. Whuidation eccurs wheh businesses fie for bankruptcy undir Chapter 7 of the Federal Bankruptcy Reform Act. This act provides for an equitabie distribution of the debtors assets among the creditors. The distribution of assets is governed by a certain priority of claims. Which of the following claimants has the highest priority according to Chapter 77 Woges due before three months of filing Unsecered elaims for customer deporits State taxes due Legat and administrative fees to operate the bankrupt firm Blue Pencil Publishing has been in nnancial distress for the past three years. The company's reorganization plans were rejected, and the bankruptey court is forching blue Pencil publishing to liquldate its assets and sette creditor clams. The court appointed the trustee with an estimated expense budget of $703,125. Subordinated debentures are subordinated only to the notes payable. he trustee has arranged the sale of Blue Pencil Publishing's assets and estimates to receive $6.25 million in proceeds from the liquidation. Procecds ftom the liquidation will be used to settie Blue Pencil Publishing's liabilities. Based on vour understanding of distribution of assets to various 3944,763 14:562000 $858.875 51,796,075 The bankruptcy courts and the company have discretion in how they elect to handie a failing firm. Just as the decasion to reorganize or liquidate the firm depends on the relationship between its going concern and its liquidation values, the significance and competiveness of the industry in which tre failing firm operates also affects the court's decision. If Blue Pencil Publishing were a public utily company or a railroad service company instead of an industrial corporation, the bankruptcy courts would likely push for: Uquidation Reorganization

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