Chapter 14 Practice Questions
1. Rank the following categories of claims and interests in order from highest to lowest priority:
I. Unpaid salaries earned within 180 days before the bankruptcy filing
II. Preferred shares
III. Subordinated secured bonds
IV. Administrative expenses of the bankruptcy
A. I, III, II, IV
B. IV, II, III, I
C. II, III, IV, I
D. III, IV, I, II
2. Which of the following affects the order of priority for claims in a bankruptcy?
A. Debtor-in-possession financing
B. Intercreditor agreement
C. Stalking horse
D. Section 363 sale
3. Tenuous Inc. has filed for Chapter 11 bankruptcy. Following the filing, Senseless Risk Bank extends credit to Tenuous. This arrangement is commonly known as:
A. A Section 363 loan
B. Pre-liquidation financing
C. Event-of-default financing
D. Debtor-in-possession financing
4. PipeDream Corp. filed for Chapter 11 bankruptcy and has formulated a plan of reorganization. Which of the following is a necessary precondition to having the plan confirmed by the bankruptcy court?
A. At least one class of unimpaired creditors must vote to approve the plan.
B. At least one-third of creditors holding accepted claims in an impaired class must vote to approve the plan.
C. At least one impaired class that will receive a distribution must vote to approve the plan.
D. The creditor with the single largest claim (by amount) must approve the plan.
5. Why do credit agreements and bond indentures often restrict or penalize prepayment?
A. To preserve creditors’ security interest
B. To prevent clawback attempts from competing creditors
C. To protect creditors from reinvestment risk
D. To prevent a cramdown
6. In a Chapter 11 bankruptcy, a cramdown may only occur if _____ has approved the reorganization plan.
A. At least one class of impaired creditors
B. All classes of impaired creditors
C. At least one class of u