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Facing Bankruptcy

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Bankruptcy might have a different definition based on the people who are will defining it, when investors heard this world they have different reaction some are afraid and anxious while for others it can mean opportunity and a business merging. Some investors are looking for a business who are in the bridge of bankruptcy so they will have the chance to take over the business but on the part of the owner who are in the verge of bankruptcy it can mean the end of the world, because it might be the only thing he has and needs to give it up. Based on Wikipedia Bankruptcy is a legally declared inability or impairment of ability of an individual or organization to pay its creditors. Creditors may file a bankruptcy petition against a business or corporate debtor (“involuntary bankruptcy”) in an effort to recoup a portion of what they are owed or initiate a restructuring. In the majority of cases, however, bankruptcy is initiated by the debtor (a “voluntary bankruptcy” that is filed by the insolvent individual or organization). An involuntary bankruptcy petition may not be filed against an individual consumer debtor who is not engaged in business.

Many businesses now a day experience bankruptcy, Bankruptcy was originally planned as a remedy for creditors not for the debtors. During the time of King Henry VIII, a law was made to allow creditor to seize all the remaining assets of a trader who could not pay their debt. And the debtor will not lose his freedom he will be charge and subject for imprisonment. In early 19th century in England, debtors were often released from prison with their debts discharged. However, for many years, bankruptcy continued to be a remedy favoring creditors, involuntary in nature and largely penal in character. It was generally used only against traders.

Bankruptcy offers an individual or business a chance to start fresh by forgiving debts that simply can’t be paid while offering creditors a chance to obtain some measure of repayment based on what assets are available. In theory, the ability to file for bankruptcy can benefit an overall economy by giving persons and businesses another chance and providing creditors with a measure of debt repayment.

Still remember the Lehman Brothers Holding Inc. a global financial service firm that did business banking, equity and fixed income sales, research and trading, investment management, private equity and private banking. Its bankruptcy filing is the largest US history, involving debt amounting to $613 billion and assets worth $639 billion. So far, the Philippines during that time have not felt the effect of the financial mayhem in the US in any major way. The Philippine banking system has minimal exposure to structured financial products: news accounts of Philippine banks’ exposure to the Lehman Brothers’ collapse put it at approximately 0.11 percent of total banking assets, or PhP5.5 billion. Individual banks with market losses from the derivatives securities have already allocated increased loss provisions in their capital. But the United States is a large economy with major effects on the global economy, so the Philippines will eventually also feel the pinch. There are several ways through which this is going to take place. Some of the banks here in our country who had invested on the Lehman Brothers are Banco de Oro and Metropolitan Bank of Trust and Company.

If I may sight some other corporation in the United States who filed bankruptcy in 2008 were Washington Mutual Inc., a savings bank holding company and former owner of Washington Mutual Bank, then largest savings and loan association in the US. The IndyMacBancorp, Inc., Holding company of IndyMac Bank, the largest savings and loan association in the Los Angeles area and seventh largest mortgage originator in the US during its time. Theoretical Framework

When we heard the wordBankruptcy it connotes a lot of things, mismanagement, lack of funds, or it can also mean weak leadership and poor decision making or economic crisis can also affect any company. But what does it really mean. Well I have gathered some elements that might be helpful for us to understand the nature of the topic given. The first element to be discussed is the investor’s, this could be one of the factors that can cause bankruptcy, and investors can make or break any company they are in. if the investor refused to invest money in his existing business who is the verge of bankruptcy surely in no time the said business will slowly face bankruptcy.Corporate bankruptcies not only cause financial losses for business partners, such as customers, lenders and suppliers, but also have adverse effects on shareholders and securities markets’ investors.

Bankruptcy allows a corporation to stop reimbursing lenders and use the company’s remaining assets, such as cash, machines and equipment’s, to reorganize. Reorganization means the firm gets a “fresh start” without the heavy burden of debt.Bankruptcy does not result in the stoppage of all debts because debtors remain in control of corporate operations as “debtors in possession.” Stock equity consists of ownership rights that a firm sells to investors on a securities exchange or in private transactions. Equity products may include common (regular) shares, preferred shares, equity futures and equity-linked financial derivatives. An investor who buys shares of equity, or shareholder, receives periodic dividend payments and makes profits when the company’s share prices rise on the financial market. He also can vote on corporate decisions, appoint senior executives and participate in a company’s annual shareholders’ meeting. A company that files for bankruptcy generally has worthless shares of equity.

Investors on securities exchanges usually sell such shares, and this process causes shares to decrease significantly. However, a firm’s shares of equity may continue to be traded during a reorganization process, provided that the company meets minimum listing requirements that a securities exchange, such as the New York Stock Exchange (NYSE) or the Johannesburg Stock Exchange (JSE), generally requires. Alternatively, these shares may be traded in over-the-counter (OTC), or electronic, markets. Restructuring process has significant effects on shareholders’ equity. Besides the financial losses that investors incur, a corporate insolvency case has an adverse “domino effect” (chain reaction) on other business partners, or trade counter-parties. A company that is unable to reimburse loans or meet other monetary commitments when they are due causes other business partners to suffer losses, which may lead to further bankruptcies.

Conceptual Framework

Statement of the Problem
This research study aims to determine how investors and businessmen can cope up if not totally avoid bankruptcy in the business industry.
Specifically, this research will attempt to answer the following problems: 1.How does bankruptcy affect the following aspect?
2.How can investor’s avoid bankruptcy?
3.Based on the findings what corrective measure a company who is experiencing bankruptcy can do? Significance of the Study
The researcher believed that this study has a beneficial to the following: Investor – the result of this study will serve as a basis to review and reevaluate the actions and decision done by the investors. Community – this study will enable them to be aware that they have a role to play regarding the bankruptcy of one company. To the future Researcher – the findings of this study will serve as a reference in the conduct of other studies related to this kind of research. The Researcher – this study will provide insights and concept on what the possible programs can be prioritized in response to the findings of this study. Scope and Limitation of the Study

The Study focuses on how the bankruptcy in the Philippines can find an alternative solution that can help the Investors to avoid the issue if not totally eliminate it. Although there are instances wherein sample cases and situation found abroad are mentioned, they only serve as comparison of what could have been and what is actually transpiring in this country. Definition of Terms

Business – is a legally recognized organization designed to provide goods, services, or both to consumers or tertiary business in exchange for money Creditors – is a party (e.g. person, organization, company, or government) that has a claim to the services of a second party. It is a person or institution to whom money is owed. The first party, in general, has provided some property or service to the second party under the assumption (usually enforced by contract) that the second party will return an equivalent property or service. The second party is frequently called a debtor or borrower. Debtors – is an entity that owes a debt to someone else. The entity may be an individual, a firm, a government, a company or other legal person. Government –is the agency through which a political unit exercises its authority, controls and administers public policy, and directs and controls the actions of its members or subjects. Industry – refers to the production of an economic good (either material or a service) within an economy. Investors – is any party that makes an investment.

Chapter Two
Local Literature
Based on the article published in workingpinoy dated last February 15, 2009, according to the article during that time four more pre-need companies are nearing bankruptcy, according to Philip Piccio, president of the Parents-Enabling Parents Coalition (PEP), a group of parents fighting for their open-ended plans with Pacific Plans. Piccio named Pryce Plans as one of the four, but didn’t name the three other pre-need firms in trouble. The SEC Chairwoman Fe Barin then told congressmen that SEC issued 2009 licenses to only 24 of more than 50 pre-need companies. The proposed transfer of pre-need regulation from the SEC to the Insurance Commission has been approved by the members of the House Committee on Banks and Financial Intermediaries. The transfer is included in a pre-need draft by Aurora Representative Juan Edgardo Angara. And then Jose Miguel Vasquez president of the Philippine Federation of Pre need Plan companies denied they invested in companies broad which later became bankrupt because Philippine law prohibits them.

Parents Enabling Parents (PEP) Coalition, an organization of owners of Pacific Plans open-ended plans, said that none of the pre-need firms under rehabilitation such CAP and Pacific Plans has been punished for mismanagement.PFPPCI President Vasquez will ask the SEC and the Central Bank to allow the pre-need industry to invest up to 10% of their total investments in dollar-denominated securities. Currently, the pre-need industry is allowed to invest only in peso-denominated securities.A list of 19 pre-need firms willing to increase their capital during that time to cope with difficulties in the financial markets is included in Salve Duplito’s article on Inquirer.net Money Smarts. One of them is Danvil Plans.

In the case of AMA Plans, it’s new in the 2009 pre-need dealer’s list, so it’s safe to assume its capital is adequate. It is also interesting to note that Pacific Plans and Ideal Pension Plans are not licensed to sell in 2009, but they are included in this list of pre-need firms willing to increase their capital. The article said that Philam Plans didn’t sign the 19-firm agreement because its trust fund is more than adequate to pay its plan holders. Foreign Literature

According to Frances Stanford Bankruptcies have become commonplace in the last few years with the economic recession that has swept the world. More and more people are out of work and have no other choice than to declare bankruptcy because they are unable to meet their financial obligations. While life insurance policies are not touched by bankruptcy in that you still have a policy in place to take care of funeral expenses and to leave some money to your family, declaring bankruptcy does have a detrimental effect on your premiums. Once you declare bankruptcy, this item goes on your credit record and stays there for eleven years. When you apply for life insurance, the company does check your credit rating to see how well you manage your finances. Having such a negative item on your report will mean that your premiums will be higher. Take a look at the monthly or annual premiums that you are now paying for your life insurance. Even if you are able to continue paying this amount after you declare bankruptcy, you have to allow for increases in the premium. If you don’t have life insurance, it is best to file for bankruptcy first and then apply so that you will know what your premiums will be rather than have to deal with increased rates.

The best advice for purchasing life insurance premiums when you are in debt and either know that you will have to eventually file for bankruptcy or have already filed is to take out a 10-year policy. In this way you know that the premiums will remain the same for that period of time. At the end of this period when it comes time to renew the policy and you are still in good health, there is a good possibility that your premiums will go down as long as your credit rating has improved. After your bankruptcy claims has been discharged and you are in a better financial situation, you should look for quotes from several term life insurance companies. There are many such companies that do understand that people are having financial difficulties through no fault of their own. These companies will do their best to get you the best possible rates so that you have the life insurance that you need at an affordable premium. Although you may be tempted to wait until the bankruptcy has been deleted from your credit report before applying for life insurance, this is not a wise financial decision to make. Life insurance is essential for everyone in all walks of life. You never know when you will need it. Local Studies

New studies are constantly being published that discuss the latest in bankruptcy trends and news. If you’re thinking about filing bankruptcy, be an informed consumer and use these bankruptcy studies to help gauge the economic pulse of your nation. The Philippines adopted the International Financial Reporting Standard in 2005. The Philippine Financial Reporting Standards/Philippine Accounting Standards (FRPS/PAS) are the new set of Generally Accepted Accounting Principles (GAAP) issued by the Accounting Standards Council of the Philippine Institute of Certified Public Accountants (PICPA), which was succeeded later on by the Financial Reporting Standards Council (FRSC). Adoption of the FPRS/PAS became effective with the annual financial reporting period beginning 1 January 2005. The Civil Code
is the primary law governing insolvency in the Philippines. Special laws can govern insolvency as long as they are not inconsistent with the code. These special laws include the Insolvency Law and Presidential Decree 902-A. The Insolvency Law covers suspension of payments along with voluntary and involuntary insolvencies.

Presidential Decree No. 902-A gives the Securities and Exchange Commission (SEC) jurisdiction over petitions for the suspension of payments. A study made by Insolvency Asia on the insolvency regime in the Philippines is provided through the link below. The World Bank’s Doing Business Survey assesses data on business closures. Results for the Philippines can be found through the link below. The Asia-Pacific Restructuring and Insolvency Guide 2006, which is linked below, provide an explanation of the restructuring and insolvency framework of the Philippines. Among other topics, the report covers the legal framework and effectiveness of court processes and legal remedies, effects on the management of the company, roles of key players involved in the restructuring and insolvency process, and financial issues such as the order in which creditors are paid in a corporate bankruptcy or liquidation. Foreign Studies

Privacy is considered by many American to be a fundamental right. Overtime, the legal framework protecting individual privacy has evolved to respond to changes in the way sensitive personal information is obtained, retained, and used. Personal financial records, which can include list of purchases, bank account numbers, and other unique identifiers, contain some of the most sensitive information about individuals, if used unscrupulously, this information can cause substantial harm.

In a world of paper records and unaffiliated financial institution, which characterized the U.S. financial system for most of its history, financial privacy concerns were relatively minor. Information on individuals was difficult to obtain, was not widely shared among institutions, and was not generally used as an asset for marketing or other purposes. Today, however, three major developments are raising new concerns about protections of personal financial information.

First financial information now flows much more rapidly, and in much greater volumes, than ever before. An ordinary desktop computer is now significantly more powerful than the mainframe of 30 years ago, and can store, manipulate, and analyze far more information at vastly lower cost. Advances in telecommunication allow this information to be sent anywhere in the world instantaneously, at similarly low cost. These technological developments have created opportunities for sharing of information among institution that were scarcely envisioned even a few years ago. In addition, the advent of large databases available through the internet creates new opportunities for access by the general public to information about individuals, often without the subject’s knowledge or consent. The free flow of information that is now possible offers much advantage in economic efficiency and individual well-being. At the same time, it poses potential new threats to a debtor’s privacy.

A second key change is the growing integration and consolidation among financial services providers. Interstate banking and branching have allowed banks to grow larger than ever before, and the removal of regulatory restraints has allowed financial services organizations to enter lines of business that were previously off limits. Banks, for example, may now affiliate with firms ranging from travel agencies to health insurance providers. This integration will allow firms and consumers to benefit from “economies of scale,” in which the provision of related financial services together can better meet consumers’ demands at a lower cost. But theseeconomies stem, in part, from an ability to share consumer data across affiliated entities and that sharing also raises legitimate privacy concerns.

A third change is the increasing use of electronic means of purchasing and payment. Americans increasing use of credit cards, debit cards and more recently electronic bill payment in lieu of cash now allows financial services companies to collect enormous amounts of detailed information about an individual’s transaction. Until recently, neither institution nor individuals were able to create detailed lifestyle portraits using such information.

The creation of electronic case files and the electronic collection and dissemination of bankruptcy information are their earliest stages. Date on the actual harm resulting from these developments are relatively scarce, however, these developments could create a risk for possible misuse or objectionable re-use. As the comment submitted on behalf of 20 state attorney General noted, “the ready availability of such information, particularly when it may be easily obtained and copied from electronic filings that can be accessed from the internet, greatly increases the concern about the uses to which the data might be out, the ability to obtain large amounts of information at low cost make the use of bankruptcy data for commercial purposes economically feasible in ways that were not possible when the data had to be hand-gathered in person from individual clerk’s offices.

The consequence of each of these developments can be better targeting of financial products to individual consumers, which can lower prices and improve service. However, these trends also may increase the risk of illegal, discriminatory, or invasive use of highly sensitive personal information. Included among the concerns raised by the State Attorneys General and privacy advocates are: Identity Theft. More widespread availability of information such as Social Security numbers, credit card numbers, and other personal identifiers create greater opportunities for unscrupulous individuals commit identity theft. Predatory Lending. Greater sharing of information within and among financial institutions could lead to an increase in the use of such information unscrupulous lenders. For example, marketers engaged in predatory lending may use this information to target especially vulnerable debtors, although limiting access to detailed personal information in bankruptcy filings will not by itself eliminate predatory lending practices, it is one step that can be taken to address this problems Synthesis

Chapter Three
Research Design
The descriptive – normative method of researched was used in this study. The Descriptive approach which aims primarily at gathering knowledge (i.e. descriptions and explanations) about the object of study but does not wish to modify the object. The target is to find out how things are, or how they have been. The researcher undertook utmost care in the gathering of data in order that she could come out with a complete and reliable input in this study. Normative approach tries to define how things should be, which means that it will be necessary to define also the subjective point of view that shall be used. This approach has sometimes been called “applied research.” In conducting a normative approach, the researcher focused more attention in the collection of data gathered so that all data will properly classified and categorized according to their relevance and contribution inputs to the analysis and interpretation of data gathered. Population & Sampling Technique

The researcher usednonprobability samplingcannot depend upon the rationale of probability theory. At least with a probabilistic sample, the researcher knows the odds or probability that could have represented the population well. The researcher is able to estimate confidence intervals for the statistic. With nonprobability samples, the researcher may or may not represent the population well, and it will often be hard for her to know how well we’ve done so. In general, researchers prefer probabilistic or random sampling methods over no probabilistic ones, and consider them to be more accurate and rigorous. However, in applied social research there may be circumstances where it is not feasible, practical or theoretically sensible to do random sampling. Here, we consider a wide range of no probabilistic alternatives. Research Instrument

The Instrument of measurement in this study is thru documentary analysis of materials gathered through books, journals, unpublished research and studies. Data Gathering Procedures
The documentary review and analysis was conducted first since it enables the gathering of preliminary information about the subject of this study. Interview was also conducted using the pre-arranged and agreed dates as well as venue for interview. Statistical Treatment of Data

Since the study was descriptive and analytical in nature, the descriptive statistics was used to analyzed the data particularly; frequency distribution and percentage distribution. Frequency Distribution – the summary or collation of the frequency of response in a particular question item, for one and of the entire block of question in another. Percentage Technique – the percent ratio of a given range of categories in relation to overall summation of the components of the range. This technique was used in the demographic profile of the respondents.

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