PT156.S1.P3.Q20 > Analytics

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Traditionally, corporate bankruptcy law placed highest priority on the orderly discharge of debts; courts generally ordered failed businesses to pay all creditors a set percentage of the amounts owed. ███

Traditional Approach · Discharge of debts is top priority

Modern Approach · “Reorganization” allows company to continue operating

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Argument for Traditional Approach · Bankruptcy is solely to pay back creditors

Example of traditionalist: Jackson

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Critique of Traditional Approach · Traditionalists do not consider other interests (employees, communities)

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Argument for Modern Approach · Fairness for all parties through (1) inclusion and (2) rational planning

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Main Conclusion · Modern approach is more equitable but also has weaknesses

Premise 1 · Credit will be more expensive

Premise 2 · No way of assessing vulnerability to loss

Passage Style

Critique or debate

20.

The author would be most ██████ ██ █████ ████ █████ ███ ██ ███ █████████ ███████████

The short-term consequences ██ ██████ ██████████ ████ ███ ████ ███████████ ████ ███ █████ ██ ███████████ ██████████ █████

The author never discusses whether short-term consequences are more or less predictable than long-term ones.

The creditors of ██████ ████████████ ███ ████ ██████████ ████ ███ ███ █████████ ██ █████ ████████████ ██ █████████ ███████

The author never indicates that creditors are more or less vulnerable to financial losses than employees. In fact, the author points out that Korobkin offers no way of assessing who is more vulnerable.

17%

Korobkin's conception of ███ ███████ ██ ██████████ ████ ██████ ████ ████ █████████ ████ ██ ██ ██████ ██ ███████████

The author never suggests that Korobkin’s approach appeals more to efficiency. Rather, the author criticizes Korobkin’s approach because it may lead to adverse economic effects and because it offers no way of assessing who is more vulnerable in the event of bankruptcy.

Insolvent companies that ███ ███████ ██ ██████████ ██████████ █████████ █ ███████ ███████ ██ █████ ███████████ █████ ████ ██ █████████ █████████ ████ ███ ██████ ██ █████████ █████ ██████ ██ ███ █████████ ████████████

The author doesn’t suggest that insolvent companies that reorganize pay back more of their debts than insolvent companies that liquidate. Korobkin may believe that (D) is possible, but we don’t have any evidence the author agrees with (D).

18%

Bankruptcy laws that █████ █ ████ ████████ ██ █████████ █████████ ██ ████████████ ████ ██ ████ ██ ████ █████████ ██ ███████ ███ █████████████ ██ █ ███ ████████ ████ ██ █████ ████ ██████████ ███ ███████ █████████ ██ ██████

Supported. The author states that under a regime focused on fairness to all parties, “creditors charge more for credit.” So, a bank would charge more in exchange for providing a loan. This is why it would be “more expensive to finance the establishment of a new business.” “Finance” in the context of establishing a new business encompasses the lending of money (which is the providing of credit).

55%

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PrepTest 156 - Section 1 - Passage 3 - Question 20

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PrepTest 156 - Section 1 - Passage 3 - Question 20

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