how a quick rinse bankruptcy works
in order for quick rinse bankruptcies to be effective involved parties must negotiate terms prior to the proceedings these negotiations take place between the government creditors unions shareholders and other parties in order to prevent filings by these parties in court that would otherwise slow down the process a quick rinse bankruptcy also known as a controlled bankruptcy involves taxpayer financing such pre negotiated bankruptcies arose during the credit crisis of 2008 due to the perceived impact that the chrysler and general motors failures would have on the economy it was argued that drawn out bankruptcy proceedings would result in massive layoffs and a loss of customers that would deepen the recession and further stunt economic growth after the financial crisis reforms focused on having companies use bail ins as opposed to bail outs as to not use taxpayer money in bankruptcies such as those of general motors and chrysler where preserving the value of the companies and giving them the best chance of reorganization and survival is of paramount importance speed is of the essence the first question among negotiators and administrators is how fast or when an agreement should be reached a company on the brink only has a limited amount of time before it begins to lose significant portions of its customers working capital financing sources suppliers and vendors benefits of a quick rinse bankruptcythe primary benefit of a quick rinse bankruptcy is speed chapter 11 bankruptcies are time consuming take up resources primarily money and can drag on for months or years impeding the businesses involved a quick rinse bankruptcy moves the process along quickly which is particularly important for creditors so that they can continue on with their own businesses by taking stock of their financial situation after dealing with a bankrupted entity quick rinse bankruptcy vs prepackaged bankruptcya quick rinse bankruptcy has roughly the same purpose as a prepackaged bankruptcy to avoid the slow complicated and expensive drag of court proceedings the two types differ in that a quick rinse bankruptcy comes with the promise of taxpayer financing such as the government bailouts of general motors and chrysler in the wake of the 2008 financial crisis the number of days it took gm to emerge from its quick rinse bankruptcy with a prepackaged bankruptcy a company in distress will tell its creditors that it wants to negotiate bankruptcy terms before it files for court protection this gives creditors the opportunity to work with a company to come to an agreement on repayment terms before a chapter 11 filing is made the new york times described controlled or quick rinse bankruptcies as existing somewhere between a prepackaged bankruptcy and court chaos example of a quick rinse bankruptcycompany abc has not been able to sell many of its goods for the past year the company has generated no profits and has had to borrow money from a few creditors to stay afloat the company has reached a point where it is in debt is not able to borrow more and sees no way out of its current situation the management of the company decides to declare bankruptcy before declaring bankruptcy however abc negotiates terms with its creditors it owes 5 million to bank one 2 million to bank two and 4 million to bank three after assessing the value of all of its assets which includes vehicles machinery and a small warehouse abc determines it can pay bank one 3 million of the 5 million bank two 500 000 of the 2 million and bank three 1 million of the 4 million the banks are not happy about this but rather than receive nothing at all they agree to the terms when company abc declares bankruptcy the court and proceedings move quickly without any hold ups as all parties have already agreed to the terms of the bankruptcy 