University of Twente Student Theses


Selling a bankrupt company

Hoveling, R. (2011) Selling a bankrupt company.

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Abstract:The credit crisis is on its return, leaving behind an amount of bankrupt companies above average. In order to pay off at least a part of the debt of these companies, trustees are appointed by the Court with the responsibility of selling the company or its assets. However anyone could become a trustee in the Netherlands, this person almost always has a lawyer background in practise. When normal, non-bankrupt, companies are for sale, the selling process is executed by M&A advisors with strong financial and commercial capabilities. It turned out that some stakeholders in the bankruptcy process are dissatisfied with the current procedures. This opinion is underlined by literature and by the interviews that have been taken place with M&A specialists and other stakeholders. In short, trustees are appointed, they get paid a legal minimum salary and sell the company by building up files. The issues mentioned above lead to the general statement: The current method for bankruptcy processing in the Netherlands is old fashion and only in favour of legal trustees. Different opinions exists about this statement, there seems to be a large difference between the qualities of different trustees. In this thesis, two main potential causes for the stakeholder dissatisfaction have been appointed:  The bankruptcy procedures  The capabilities of bankruptcy trustees While investigating the first cause, it turned out that the state of suspension of payments is not working as it is suppose to work. Almost all companies go to the state of bankruptcy afterwards although the suspension of payments should have given the company some financial relief for restructuring and survival. Market reactions are a very important factor why suspension of payments is not working properly. For the second cause, it is investigated which criteria the Court uses for the appointment of trustees. This is not clear in literature at all and appointment criteria differ per Court district. Some creditors claim that their influence on the operations performed by trustees could help the process. However cooperation between the creditors is difficult since they have different interests. The tax authority also has an important role in the cooperation since in most cases, it is the largest creditor. Two potential improvements have been investigated  The selling process  The valuation process When trustees sell a bankrupt company, the process is performed in a short time frame and in most cases, no due diligence takes place. Trustees are using valuation by appraisers most of the times whereas M&A advisors use different techniques as DCF, CCA and CTA. These going concern valuations will typically lead to a higher price compared to liquidation values. It is important however to use and compare different techniques in order get a better understanding of the different business items that create value. After these investigations it could be said that process for bankruptcy processing needs improvement including the suspension of payments procedures. The operations of trustees are different from M&A specialist because the process is more legally driven. However commercial and deal making skills of M&A advisors are crucial in getting the best price for a company, therefore a team of a trustee and M&A specialist good work better for selling bankrupt companies.
Item Type:Essay (Master)
Faculty:BMS: Behavioural, Management and Social Sciences
Subject:85 business administration, organizational science
Programme:Industrial Engineering and Management MSc (60029)
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