PrepTest 156, Section 1, Question 20
Traditionally, corporate bankruptcy law placed highest priority on(440 more words not shown)
The author would be most(10 more words not shown)
- AThe short-term consequences(14 more words not shown)
- BThe creditors of(15 more words not shown)
- CKorobkin's conception of(15 more words not shown)
- DInsolvent companies that(28 more words not shown)
- EBankruptcy laws that(33 more words not shown)
Reading the passage
The author's position is qualified: Korobkin's approach is fairer, but it has costs. That means an answer can be supported by one of the criticisms; it doesn't have to praise modern bankruptcy law.
What we’re looking for
In particular, follow the final paragraph's economic chain. Protecting more affected parties can leave creditors with less after bankruptcy. Greater risk makes creditors charge more for loans. That is a consequence of the rules, not just a problem for a company already in bankruptcy.
Working the answers
- A
We aren't told which approach has more predictable short-term consequences. A preference on fairness doesn't establish predictability, and the author makes no such comparison.
- B
The author says Korobkin lacks a way to assess relative vulnerability. That doesn't establish that creditors are more vulnerable than employees; the comparison remains unresolved.
- C
Jackson expressly appeals to efficient collection. Korobkin's distinctive emphasis is broader inclusion and protection of those in greater distress. There is no support for giving Korobkin the stronger appeal to efficiency.
- D
Continued operation might seem to offer a chance of eventual repayment, but no comparative recovery rates are provided. A possible advantage is not evidence that reorganized companies actually repay a greater proportion of their debts.
- ECorrect
Creditors charge more when the bankruptcy rules increase their risk of recovering less. A new business that needs financing faces that higher price of credit too. The increased cost of borrowing is one of the economic drawbacks the author identifies.
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