What legal process is intended to ensure equality among the creditors of a corporation declared in bankruptcy?

What legal process is intended to ensure equality among the creditors of a corporation declared in bankruptcy?

• A. Liquidation
• B. Reorganization
• C. Bankruptcy
• D. Foreclosure

Answer: (C)

The legal process intended to ensure equality among the creditors of a corporation declared in bankruptcy is known as bankruptcy. This process establishes a structured framework for dealing with the debts of an insolvent entity. When a corporation files for bankruptcy, it triggers automatic legal protections and options for managing outstanding debts, allowing for a fair distribution of the corporation's assets among various creditors. Bankruptcy aims to maximize the recovery for creditors by transforming the financially distressed company's assets into cash and then distributing this cash equitably based on the priority of claims established in bankruptcy law. This ensures that all creditors receive a proportionate share of the available assets, addressing issues of fairness and equity among creditors. In contrast, while liquidation focuses on the selling off of assets to pay creditors, and reorganization involves restructuring debts to continue operations, neither of these processes specifically targets the equality of creditor claims in the same way as bankruptcy as a comprehensive legal framework. Foreclosure, on the other hand, pertains specifically to the process of reclaiming property due to default on secured loans and does not address the broader context of corporate debts and creditor equality.

The legal process intended to ensure equality among the creditors of a corporation declared in bankruptcy is known as bankruptcy. This process establishes a structured framework for dealing with the debts of an insolvent entity. When a corporation files for bankruptcy, it triggers automatic legal protections and options for managing outstanding debts, allowing for a fair distribution of the corporation's assets among various creditors.

Bankruptcy aims to maximize the recovery for creditors by transforming the financially distressed company's assets into cash and then distributing this cash equitably based on the priority of claims established in bankruptcy law. This ensures that all creditors receive a proportionate share of the available assets, addressing issues of fairness and equity among creditors.

In contrast, while liquidation focuses on the selling off of assets to pay creditors, and reorganization involves restructuring debts to continue operations, neither of these processes specifically targets the equality of creditor claims in the same way as bankruptcy as a comprehensive legal framework. Foreclosure, on the other hand, pertains specifically to the process of reclaiming property due to default on secured loans and does not address the broader context of corporate debts and creditor equality.