Certified Financial Management Specialist Practice Exam

What process typically occurs during bankruptcy proceedings?

1. Horizontal merger

2. Management-led buyout

3. Purchase of assets

4. Conglomeration

The correct answer is: Purchase of assets

During bankruptcy proceedings, the process of purchasing assets often takes place as a way to resolve debts and liquidate the bankrupt entity’s remaining value. When a company files for bankruptcy, particularly under Chapter 11, it may seek to sell off certain assets to generate funds. This process is aimed at maximizing recovery for creditors and stakeholders, allowing them to recoup some of the losses incurred during the bankruptcy. Purchasing assets in bankruptcy can involve a wide range of assets, including physical property, inventory, intellectual property, and even contracts. This process is managed by the bankruptcy court and is subject to legal oversight to ensure that the sale is conducted fairly and in the best interest of all creditors. It allows potential buyers to acquire valuable assets at a reduced price, often leading to opportunities for investment or business expansion. The other processes, such as horizontal mergers, management-led buyouts, and conglomeration, are typically strategic business decisions undertaken in a different context, often focusing on growth, collaboration, or diversification rather than resolving insolvency issues. Therefore, the purchase of assets directly addresses the financial distress situation that arises during bankruptcy, which is the fundamental reason it's the correct answer in this context.