Why do creditors usually accept a plan for financial rehabilitation rather than demand liquidation of  a business?

Expert Answers

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The reason that creditors do this is that they believe that they will get more of their money back than they would in a liquidation.  There are two reasons for this.

First, a financial rehabilitation plan is essentially a contract or an agreement between the creditor and the debtor.  It does not involve going to court and all of the costs inherent in that process.  Second, in a financial rehabilitation process, the firm that owes the money remains in business.  If it remains in business, it can presumably pay back more of its debts over time.  This means that the creditors will recover more of what is owed to them than they would if the firm were simply shut down and liquidated.

In these ways, a financial rehabilitation plan generally allows creditors to maximize their chances of being paid back.

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