Magnachip Semiconductor Corporation — financial distress indicators

⚖️ U.S. legal pathway — Title 11, U.S. Code

Which chapter would apply?

• Chapter 11 — reorganisation. Management usually stays in control as debtor-in-possession; the automatic stay (§362) halts collection; a plan must meet the best-interests test (§1129(a)(7)) and the absolute priority rule (§1129(b)) — creditors are paid before shareholders, who are frequently wiped out.
• Chapter 7 — liquidation. A trustee sells assets and distributes proceeds by statutory priority (§§507, 726).
• Subchapter V (“Chapter 5”) is a fast track for small-business debtors under a statutory debt cap, but SEC-reporting companies are excluded (§101(51D)) — so it rarely applies to listed companies.

What typically triggers a filing

• Payment default or covenant breach lenders will not waive; a debt maturity that cannot be refinanced.
• Auditor going-concern doubt (ASC 205-40 / PCAOB AS 2415) — often itself a default trigger in loan agreements.
• Creditors can force a case with an involuntary petition (§303) if debts are not paid as they come due.
• Delisting after sustained sub-$1 prices or equity deficits cuts off equity funding.

Transactions shortly before filing can be clawed back (preferences — 90 days, §547; fraudulent transfers — 2 years, §548).