Problem184 Asset Auctions In Sweden In Sweden firms that fai

Problem18-4 Asset Auctions In Sweden: In Sweden, firms that fail to meet their debt obligations are immediately auctioned off to the highest bidder. (There is no re-organization through Chapter 11 bankruptcy). The current managers are often the high bidders for the company. Why?

Solution

In Sweden, firms that fail to meet their debt obligations are immediately auctioned off to the highest bidder. (There is no re-organization through Chapter 11 bankruptcy). The current managers are often the high bidders for the company.

In such case what happens is that in case of the going concern value,the managers get to pay less and they end up holding the equities of the firm. Also SALE BACK is also enabes through this action giving back controls in the hands of management.

Soch salebacks are common in Sweden.