Final answer:
In a solvent firm, the company is run by the owners or managers for private companies, or by a board of directors in the case of public companies. In bankruptcy, control may remain with the management during Chapter 11 reorganization, or shift to a bankruptcy trustee in Chapter 7 liquidation. Firms file for bankruptcy to restructure debts and avoid shutting down.
Step-by-step explanation:
When a firm is solvent, it is typically run by either the owners or hired managers in the case of a private company. A private company can be a sole proprietorship run by an individual, or a partnership run by a group. On the other hand, a public company is owned by shareholders who elect a board of directors to oversee management. During solvency, these directors hire and supervise top day-to-day management, a practice known as corporate governance.
In the case of bankruptcy, control can shift. The management often remains in place in a Chapter 11 bankruptcy, where the company is reorganized under the bankruptcy court's supervision. However, if a company proceeds to Chapter 7 bankruptcy, where the company is liquidated, a bankruptcy trustee is appointed to oversee the liquidation process.
Many firms file for bankruptcy yet continue operating to restructure their debts and become financially stable again without having to shut down completely. This process allows them to keep their businesses running and employees working, while they work out a plan to pay creditors and improve their financial situation.