Corporate Liquidation & Reorganization PDF

# Corporate Liquidation & Reorganization ## Millan - **Insolvency:** - **Voluntary:** Corporate files petition to the court - **Involuntary:** 3 or more creditors ### Statement of Affairs - Financial position of liquidating entity #### Assets: 1. **Assets pledged to fully secured credit...

# Corporate Liquidation & Reorganization ## Millan - **Insolvency:** - **Voluntary:** Corporate files petition to the court - **Involuntary:** 3 or more creditors ### Statement of Affairs - Financial position of liquidating entity #### Assets: 1. **Assets pledged to fully secured creditors:** - Assets with realizable value ≥ Expected net settlement 2. **Assets pledged to partially secured creditors:** - Assets w/ RV < Expected NS - Not been pledged as security for liabilities - Includes excess of assets pledged to FSC over related liabilities - Ex: Total p - Total - Net free assets 3. **Free assets:** #### Liabilities: 1. **Unsecured liabilities w/ priority:** - Not secured by any asset - Paid FIRST before other unsecured liabilities 2. **Fully secured creditors:** - w/ sufficient realizable values - ~Loan owed < collateral (~assets) 3. **Partially secured creditors:** - w/ insufficient realizable values - ~Loan owed > collateral (~assets) - ~All other liabilities not covered under 1, 2, 3 accrued exp. 4. **Unsecured liabilities w/o priority:** - > estimated deficiencies & diff. of restated A & L calc’s claims will NOT BE PAID IN FULL #### Estimated recovery percentage of unsecured creditors without priority - Net free assets - Total unsecured liabilities without priority - unse wred **Estimated deficiency to Unsecured =** 1. **Net free assets** 2. **Less: Total unsecured Liab. w/o prio** 3. **Total assets at realizable val.** 4. **Less: Total Liab. at realizable val.** - @ settlement - amounts - Total unsecured liab w/o prio - uncecared portion of 76 - +unsecured liabilities - multiply: (%. recovery - 1. claim) **Statement of Realization and Liquidation** | | Debits | Credits | | --- | --- | --- | | Non cash acset available for disposal @ Beg. | - | | | e Book value / Carrying Amt. | - | | | unrecorded assets | - | Assets not realized | | "additional assets" or "new assets" | Assets to be realized | Assets realized | | actual net settlement amounts | Assets acquired | Liabilities to be liquidated | | | Liabilities liquidated | Liabilities assumed | | | Liabilities not liquidated | Supplementary income | | Unpaid liabilities @tnd | Supplementary expenses | | | @Book valve | | | | realized incurred | | | ### Guerrero - **CH.6 Corpo in Financial Difficulty. Liquidation** ### Statement of Affairs | Book Values | Assets | Est. RV | Available for Unsec. Creditors | |---|---|---|---| | Pxx | Pledge to fully secured creditors | Pxx | | | LESS: Liabilities to fully secured creditors | | Pxx | | | Xx | | | | | Xx | Pledge to partially secured creditors | Xx | Pxx | | Pxx | | | | | Xx | Free assets | Xx | Xx | | Xx | | Xx | Xx | | | Total free assets | Xx | Xx | | LESS: Creditors w/ priority | | Xx | Xx | | | Net free assets | Xx | Xx | | | Est. deficiency (to balance) | Xx | Pxx | | Pxx | | Pxx | Pxx | | Book Values | Liabilities & SH Equity | Secured & Priority Claims | Unsecured Non-priority Liab. | |---|---|---|---| | Pxx | Liabilities w/ priority | Pxx | | | Xx | Fully secured creditors: | Xx | | | Xx | Partially secured creditors: | Xx | | | Xx | Less: Val. of pledged Assets; | Xx | | | Xx | Unse wired creditors: | Xx | Pxx | | Xx | Stockholders' equity: | Xx | Pxx | ### How to Solve: - **Requirement (a)**: Statement of affairs - **Methodology** 1. **NRV of Assets** 2. **Net free assets** 3. **est. deficiency** ### Formula: Example PROBLEM 1 #### 1. Net Free Asset - Total Assets: 7 054 000 - LESS: - FS ( 4 000 000) - FSP ( 30 000) - PS-NP (400 500) - NRA (810 500) - **NRA 1 814 000** #### 2. Estimated Deficiency - **NRA** - **a)** Less: Total Unsec. Liab w/o priority - **b)** LESS: Total liabilities @ RV - **c)** MULTIPLY: (%. recovery-1. claim) #### 3. Recovery Percentage - Est. Recovery of - Unsec w/o priority - Net free asset - Total Unsec Liab w/o Prio - **Est. Rewvery =** - **Est. deficiency =** - Total assets @ RV - LESS: Total liabilities @ RV - 5.2m+ 400K+60K + 334.4K - (52) - 7 054 400 - (7 832 000) - 777 600 - 1 814 000 - 2 592 000 - 70% (if (1-Recovery %.) & Deficiency 1. ### Reorganization 1. **Group Reorganization** - ownership changes 2. **Recapitalization** - change in capital structure - replacement of old shares w/ new shares 3. **Quasi-reorganization** - revalues asset and liabilities & realigns equity - to establish fresh start 4. **Corporate rehabilitation** - administered by another party to bring back its former financial condition - settlement of obligation 5. **Troubled debt restructuring** - grants the debtor concession ### Answers: