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Apportioning indirect costs of bankruptcy

apportioning indirect costs of bankruptcy

After a public hearing and a workshop for permit holders, the district's fee system was changed to a two-tiered system commencing in [ Cal. App. 3d ] fiscal year -- still apportioning direct costs based on the labor standard, but adding indirect costs to the fees and apportioning them by a formula derived from the amount of. Altman () found that the total (direct and indirect) costs of bankruptcy amount to about 15% of predistress firm value for industrial firms and around 7% for retailers. Franks and Torous () concluded that the average incremental cost of a formal proceeding (i.e., bankruptcy) exceeds that of an informal workout by at least %. This paper begins to look at this question with brief overview of the concept of bankruptcy costs, traditionally divided between direct and indirect costs. I next turn to a consideration of the process for overseeing bankruptcy costs. I briefly trace the history of court control of compensation in corporate bankruptcy, and then detail the.

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See what you know about these differences and examples of both by using the worksheet and quiz. Log in. Sign Up. Explore over 4, video courses. Find a degree that fits your goals. Try it risk-free for 30 days. Instructions: Choose an answer and hit 'next'. You will receive your score and answers at the end. Jennifer is the CEO of a company that has many debts. Why does she decide to file a Chapter 11 bankruptcy with the court?

It would allow her to refinance the debts or reduce the interest or principal on existing debts. It would enable her to sell off the company's assets to repay the debts. It would allow her to restructure the company in an effort to pay off its debts. Cancel anytime. Company A's creditors are so worried about the company's ability to repay them that they file with the court to demand that Company A sell off all the assets it owns in order to pay off its debts.

Bris, et al [8] N. For example, Texaco officials asserted 61 Arizona and S. Source- Altman and Hotchkiss [35]. All in all, lawsuits are not zero-sum games, since defendants lose Unlike direct expenses, indirect costs represent the joint outcome more than plaintiffs gain: despite all the reasons that could produce of suboptimal actions carried out by corporate stakeholders. Some this asymmetric wealth effect direct legal costs, changes in com- authors [35,36] state that the indirect costs are actually substantial- bined tax liability, misuse of free cash flow by the victor , Cutler and ly higher than the direct ones, although they may be confounded Summers argue that they are insufficient when summed together to with costs that would have arisen with pure business dislocation explain the asymmetry of wealth effects in Pennzoil v.

Texaco: they and distress. The same conclusion is reached by other studies [39], ditions and lack of management attention on the business itself , according to which direct costs alone are unlikely to explain the arising because of asymmetric information, conflicts of interest, free wealth asymmetry.

Con- cerns small-medium non-listed firms, we needed to extrapolate a sistently with one of the previous investigations [38], the study suitable set of variables from the models suggested by previous shows significant combined wealth leakages. Their findings demonstrate that highly leveraged firms lose Authors Sample Variables Estimated costs sale and market share to their less leveraged competitors in indus- Industry sales 8. In stock return regressions, the coefficient Sales of the leverage interaction variable is negative: high leveraged Titman [10] in distressed indus- SG Return on total capital Return on equity [Table-2] summarizes the results of this research, also showing the variables used to estimate the indirect costs of bankruptcy proce- Lost sales and operating margins, as well as reduction in long-term dures.

In situa- reductions in stock returns. We excluded from the H1: The closer a company gets to bankruptcy, the more its sales initial sample sole proprietorships and partnerships because, ac- decline.

Consistent with previous studies [10], we did not in- H2: When a company is close to bankruptcy, its operating margins clude in our sample companies belonging to finance and banking drop. On the same wavelength and for the same reason, we left out other industries, such as insur- We expected a decline in both sales and operating profits, becom- ance, real estate development and agriculture.

In any cases, de- ing more pronounced as firms get closer to bankruptcy i. Moreover, as stated in previous studies concerning the Italian con- Companies which filed for bankruptcy in make up the first text [46], some failed firms do not regularly submit their financial sample.

We collected the information from the official databases of statements in some of the years prior to bankruptcy. As a conse- the main Italian courts Milan, Rome and Naples, situated, respec- quence, because we analyzed financial statements going back five tively, in the North, Centre and South of Italy. Within Italian bank- years, these firms have been excluded. The Results analysis also took account of changes in the values of the above- mentioned parameters which occurred in the period from Results of Test Sample , estimating them on a yearly basis.

Mean Median Std. This outcome is very interesting and tive variations in the three years preceding bankruptcy. The same conclusion can be reached analyzing operating mar- the financial conditions of the firms they are buying from.

The decrease in profitability of the companies is confirmed by availability due to cash inflows from sales in order to keep obtain- an analysis of the capability of assets in place to generate income: ing credit from banks. Therefore, notwithstanding an increase in their turnover, compa- nies record plummeting operating margins, lower return on sales Moreover, growing sales solve some of the issues raised in previ- and poorer assets profitability. At this point, a contradiction seems ous research [9] that considered revenue losses as a consequence to emerge: on the one hand, net sales increase quite remarkably of bankruptcy, whereas it could be argued that the link moves in while, on the other, operating margins decrease.

A calculated, estimating yearly changes together with the variations further explanation can be found in light of the results concerning occurred between the first and the last year of our research, the third hypothesis. Table 6- Magnitude of indirect bankruptcy costs Failed firms no. This outcome therefore leads us to reject once in the first place.

Nevertheless, this outcome has to be analyzed again hypothesis 1, for the reasons already highlighted. Descriptive values for the control sample can also be explained by the lack of statistics and the yearly changes are summarized in the following abovementioned management-driven losses [10], which can be an [Table-7] and [Table-8]. This report stated that to offset the proposed reduction in state support, the administration intended to seek legislation authorizing local districts to charge emission fees to cover operating costs noting that under current law only the south coast district had such authority.

Although observing collection of emissions fees would make most districts self-supporting, the legislative analyst deferred its recommendation on the level of state support until legislation permitting the fees to be levied could be enacted and fee schedules put in place in each district. Effective October 1, , section was amended to state: "'A district board may adopt, by regulation, a schedule of annual fees to be paid for the evaluation, issuance, and renewal of permits to cover the cost of district programs related to permitted stationary sources authorized or required under the provisions of Division 26 commencing with Section that are not otherwise funded.

The bills to amend section Sen. In a May letter from the chairman of the Senate Committee on Local Government Senator Marks , reference was made to that committee's reasons for recommending deletion of the emissions language. An ambiguity in that report has caused some local officials and industry representatives to ask for clarification. The amendment also added subdivision g deleted in requiring the legislative analyst to review the fee systems' capability to finance the activities of local districts, evaluate the overall equity and reasonableness of the fees as they affect segments of industry and agriculture which pay the fees, and report the findings and recommendations to the Legislature by October 1, In the statute, the Legislature stated its intent was to investigate new opportunities for reducing the costs of administering programs in which the state and counties share responsibility, and the legislative analyst was requested to work with county officials and estimate the savings to the state and counties if certain proposals were implemented, along with the probable effects on program beneficiaries, and to submit progress reports to the Legislature by January 1, , and July 1, , and a final report by January 1, The legislative analyst report on "Financing Air Pollution Control" dated October summarizes past developments, including the proposed but essentially not enacted cuts in state funding of local districts for the fiscal year.

The report described the amendments to section ch. Further, the report observed: "The general understanding of the Legislature and the districts during consideration [ Cal. Because the Legislature continued funding for subventions last year, however, only two districts exercised their authority to establish fees. Moreover, our preliminary work on this report indicated that the nature of emission fees and the role of these fees in financing air pollution activities is not clear from a conceptual standpoint.

The executive summary of the legislative analyst's report notes that in submitting the budget, the governor proposed "legislation be enacted authorizing the districts to charge fees for stationary source emissions in order to replace the revenues lost" as a result of the proposed 80 percent reduction in state subventions to local districts. The report characterized the amendments as "authorizing districts to impose emission fees.

In , the Legislature added the last sentence to subdivision a of section , stating, "Nothing in this subdivision precludes the district from recovering, through its schedule of annual fees, the estimated reasonable costs of district programs related to permitted stationary sources. Subdivision b allows the district board to charge a deposit prior to evaluating a [ Cal. Subdivision h allows the district to charge fees for permit holders emitting toxic air contaminants based on the direct and indirect costs of district activities relating to each toxic air contaminant.

Our statutory analysis involves two concepts: 1 the extent to which a local district may recoup costs by collecting fees from permit holders rather than relying on government funds ; and, 2 the methods by which a district may allocate program costs between permit holders. As we discuss below, section has expanded the authority of the district so that it may now recover all costs related to permitted stationary sources through fees.

Further, section now partially addresses the methods by which the district may allocate certain costs among permit holders. That is, subdivision b allows a local district to charge a deposit for evaluating a permit application based only on the actual cost of the evaluation.

Subdivision h allows a district to assess fees against those emitting toxic air contaminants based on the actual costs of programs related to those toxins. Other than these two specific cost items, however, the statute does not address how the remaining costs involved in issuing and renewing permits may be allocated.

Moreover, the statute from its inception has been silent as to how the district may allocate among permit holders the indirect costs pertaining to the overall permit program but not attributable to any specific permit activity or permit holder. As amended in , section specified the activities for which fees could be charged i. The amendment expanded the language of section , broadly stating fees could be charged for evaluating, issuing and renewing permits to "cover the cost" of the district's programs.

The amendment, by adding the last sentence to subdivision a , clarified that all reasonable costs could be recovered through fees. The legislative history of section suggests the Legislature, at least by , contemplated the districts should use an emissions-based fee schedule to support their operations. The legislative analyst's budget report referred to the desirability of emissions fees.

The legislative analyst's report on air pollution control financing explicitly stated the general understanding of the Legislature and the districts during consideration of Chapter was the districts would adopt emissions fees, and the report characterized the amendments as authorizing emissions fees.

At the time of the budget report, the statute was in effect, which statute was interpreted as not authorizing the recoupment through fees of indirect costs of the permit program. It is these indirect costs, recoverable under the amendments, which San Diego's APCD has apportioned based on emissions.

Thus, even if arguendo the statute were interpreted as not allowing direct costs to be apportioned based on emissions, fn. Moreover, the budget report suggests the desirability of a district-implemented fee system based on emissions, and this legislative understanding was again acknowledged in the legislative analyst's report. Thus, regardless of whether under the statute the district had authority to base fees on emissions, the amendment clearly contemplated such authority.

Although the amendment did not expressly authorize the use of [ Cal. As suggested in the May letter from Senator Marks clarifying an ambiguity on the emissions issue, the language appears to have been deleted to ensure the statute was not construed as requiring the fees be based on emissions. Ravettino v. City of San Diego 70 Cal. The express reference to the possibility of using emissions as a basis for the south coast district board's fees in section is not sufficient to overcome the strong indications of legislative intent in the legislative analysts' reports pertaining to section The general rule that where a statute contains a critical phrase, omission of that phrase from a similar statute on the same subject shows a different legislative intent see Craven v.

Crout Cal. Construing the Legislature's decision not to include the reference to emissions in section as precluding the use of fees based on emissions, gives undue weight to a rule of legislation by implication and ignores the concrete evidence of intent favoring an emissions-based system in the legislative analyst reports.

Analyzing the various subdivisions of section , intervener IEA argues the Legislature has evinced a general intent that the districts only charge fees to a permit holder for the work related to that permit holder's permit, and not for work done on another's permit. This argument ignores the fact the San Diego district's fee schedule uses an emissions-based, rather than labor-based, apportionment method only for those indirect costs which are related to the overall permit program but which cannot be directly attributed to any specific permit activity or fee schedule.

Thus, the emissions-based schedule does not charge a permit holder for work on another's permit, since these indirect costs by definition do not involve a specific permit holder. The parties dispute whether this district is a "special district" within the meaning of Proposition 13 see Los Angeles County Transportation Com.

Richmond 31 Cal. Martin 38 Cal. State Bd. Section 4 is a limitation on the imposition of "special taxes" by local entities because it requires a two-thirds vote of the local electorate. Richmond, supra, 31 Cal. Sections 3 and 4 were included to restrict imposition of additional or increased state or local taxes other than property taxes which would effectively withdraw or deplete the property tax savings in sections 1 and 2.

Martin, supra, 38 Cal. Pennell v. City of San Jose 42 Cal. County of Trinity Cal. City of San Diego 91 Cal. As stated in Beaumont Investors v. Beaumont-Cherry Valley Water Dist. The mandate action did not challenge the reasonableness of the district's costs, but only the method of apportioning those costs based on emissions.

The district's report explains in detail the rationale and method used for apportioning the costs on an emissions-based, rather than labor-based, standard for apportioning indirect costs. If the labor-based standard, already used to apportion direct costs, were also used for indirect costs small polluters would pay fees greater than their proportionate contribution to pollution, whereas large polluters would pay proportionately less.

For example, under the labor-based system for direct costs, service stations pay about 34 percent of the total annual permit renewal fees, and emit cumulatively only 1 percent of the industrial pollution.

In contrast, the 31 major polluters pay about 13 percent of the fees, but emit 38 percent of the industrial pollution [ Cal.

apportioning indirect costs of bankruptcy

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