CORPORATE LIQUIDATION

DE LEON/ DE LEON/ DE LEON

THE STATEMENT OF AFFAIRS
Assets:
Pledged with Fully Secured Creditors –
estimated cash proceeds is equal to or more than the
amount of the secured claim.
Pledged with Partially Secured Creditors –
estimated cash proceeds is less than the amount of
the secured claim.
Free Asset – any asset of the entity that has not
been used to secure the payment of any of the
company’s liabilities and therefore any cash
proceeds therefrom is available to unsecured
creditors.
THE STATEMENT OF AFFAIRS

Liabilities
1. Secured Liabilities – that which is covered by a
collateral asset
(a) Fully-secured – the realizable value of the
pledged asset is at least equal to the amount of the
claim.
(b) Partially-secured – the realizable value of the
pledged asset is less than the amount of the claim.
Every partially secured claim has a secured portion,
which is covered by the realizable value of the
collateral and an unsecured portion, that which is
not covered.
THE STATEMENT OF AFFAIRS

2. Unsecured Liabilities – that which is not

covered by a pledged asset.
(a) Unsecured liabilities with priority – those
that are specified under the Bankruptcy Law that
must be paid in full ahead of any other type of
unsecured liabilities (Taxes Payable, Wages Payable
and Liquidation Expenses).
(b) Unsecured liabilities without priority – is
any other type of unsecured liability.
Corp Liquidation – Suggested Solutions

Problem 1.0

1 Short-cut Procedures re Statement of Affairs

Estimated cash to become available
(P17,920 + 206,080 +80,640 + 301,952 + 11,200 + 112,000) P729,792
Less Prioritized Claims:
Fully-secured creditors (MNP) P225,792
Partially-secured (Secured Portion) 80,640
Unsecured with priority (Various) 147,840 454,272
Estimated net amount available to UC w/o priority P275,520
Less Unsecured amount
Partially-secured (Unsecured portion) P 13,440
Notes payable (balance) 85,120
Accounts payable 268,800 367,360
Estimated deficiency to UC w/o priority ( 91,840)

ERR= 275,520/ 367,360 = 75%

2 Estimated Recoverable Amounts to the Different Creditors

Creditors Peso Claim Est RR Est Rec Amt

FSC (MNP) 225,792 100% P225,792

UC w/Priority (Various) 147,840 100% 147,840

PSC – Total BV 94,080

Less Secured Portion 80,640 100% P 80,640
Balance 13,440 75% 10,080 90,720

Unsecured w/o Priority:

Notes payable 85,120
Accounts payable 268,800
353,920 75% 265,440

821,632 ( 91,840) 729,792

Statement of Estimated Deficiency to Creditors
Estimated loss on sale of assets:
Merchandise inventory P 94,080
Machinery and Equipment 177,408
Total P 271,488
Add contingent liability:
Estimated liability to trustee 116,480
Gross loss P387,968
Less Estimated gain on sale of assets:
Office supplies P 2,240
Add Contingent asset (DV) 112,000 114,240
Estimated net loss P273,728
Less loss borne by stockholders(448,000-266,112) 181,888
Estimated deficiency to UC without priority P 91,840
LIQUIDATION PROCESS
1. Takeover of the Net Assets of the
Distressed Corporation
2. Realization of the Non Cash Assets
3. Liquidation of Liabilities
4. Closing the accounting records
STATEMENT OF REALIZATION AND
LIQUIDATION ASSETS
Assets to be Realized Assets Realized

Assets Acquired or Discovered Assets Not Realized

Assets to be Realized- These are the assets on the Financial Position at

the start of the liquidation process and are presented at book value

Assets Acquired- These are the assets not listed in the Financial Position at
the start of the liquidation. These assets are acquired or discovered by the
trustee during the time frame that he is allowed to manage the distressed
company.

Assets Realized- These are the assets that were sold/converted into cash.

Assets Not Realized- These are the unsold assets or assets not yet
converted into cash.
STATEMENT OF REALIZATION AND
LIQUIDATION
LIABILITIES
Liabilities Liquidated Liabilities to be Liquidated

Liabilities NOT Liquidated Liabilities Assumed

Liabilities to be Liquidated- These are the existing liabilities on the Financial

Position at the start of the liquidation process that are to be paid by the trustee
upon his/her takeover of the net assets

Liabilities Assumed- these are the new liabilities incurred by the trustee
during the time frame that he is allowed to manage the distressed company.

Liabilities Liquidated- these are the old and new liabilities paid by the trustee

Liabilities NOT Liquidated- these are the old and new liabilities remaining
unpaid at the time the trustee is to prepare the statement of Realization and
Liquidation by the trustee
STATEMENT OF REALIZATION AND LIQUIDATION
REVENUES, EXPENSES, GAINS AND LOSSES
Supplementary Charges Supplementary Credits

This is similar to the income summary account. It contains all nominal accounts
accumulated during the time frame the trustee is managing the distressed
company.

Supplementary Charges- Contains all expenses and losses

Supplementary Credits- Contains all revenues and gains

STATEMENT OF REALIZATION AND LIQUIDATION
ASSETS
Assets to be Realized Assets Realized

Assets Acquired or Discovered Assets Not Realized

LIABILITIES
Liabilities Liquidated Liabilities to be Liqquidated

Liabilities NOT Liquidated Liabilities Assumed

REVENUES, EXPENSES, GAINS AND LOSSES

Supplementary Charges Supplementary Credits
TAKEOVER OF THE TRUSTEE
 ASSETS
Assets to be Realized Assets Realized

Assets Acquired or Discovered Assets Not Realized

LIABILITIES

Liabilities Liquidated Liabilities to be Liquidated

Liabilities NOT Liquidated Liabilities Assumed

REVENUES, EXPENSES, GAINS AND LOSSES

Supplementary Charges Supplementary Credits
REALIZATION OF THE NON CASH ASSETS
Gross Loss
Sale of NCA
Accts Receivable 5,120
Inventories 106,240
Land and Buildings 128,000
Intangible Asset 166,400 405,760
Payable to Trustee 52,480
458,240
REALIZATION OF THE NON CASH ASSETS
 ASSETS
Assets to be Realized Assets Realized

Assets Acquired or Discovered Assets Not Realized

LIABILITIES

Liabilities Liquidated Liabilities to be Liquidated

Liabilities NOT Liquidated Liabilities Assumed

REVENUES, EXPENSES, GAINS AND LOSSES

Supplementary Charges Supplementary Credits
Cash available
(P25,600+46,080 +124,160 +640,000) P 835,840
Less Prioritized Claims:
Fully-secured creditors P 512,000
Unsecured with priority (Various) 78,080 P 590,080

Estimated net amount available to UC w/o priority P 245,760

Less Unsecured amount
Notes payable 256,000
Accounts payable 320,000 576,000
Estimated deficiency to UC w/o priority P 330,240

Recovery Rate= 245,760/ 576,000 = .4266667

LIQUIDATION OF SECURED LIABILITIES
RECOVERABLE AMOUNTS OF UNSECURED CREDITORS

Liability Rec Rate Rec Amt Balance

Unpaid Amount
Accounts Payable 320,000 * .426667 136,533 183,467
Notes Payable 256,000 * .426667 109,227 146,773
245,760 330,240
LIQUIDATION OF UNSECURED LIABILITIES
 ASSETS
Assets to be Realized Assets Realized

Assets Acquired or Discovered Assets Not Realized

LIABILITIES

Liabilities Liquidated Liabilities to be Liquidated

Liabilities NOT Liquidated Liabilities Assumed

REVENUES, EXPENSES, GAINS AND LOSSES

Supplementary Charges Supplementary Credits
CLOSING
 MULTIPLE CHOICE
1. A
Est. cash available (P3,661+ 56,448 + 23,680+ 28,160 + 2,560) P 114,509
Less : Priority claims : Notes payable
(Inventory- fully secured) 12,800
(Equipment- sec portion) 2,560
Wages payable P 3,200
Taxes payable 2,317 20,877
Estimated net cash available 93,632
Less Unsecured amounts: Notes payable (unsecured P) P 4,032
Accounts payable 101,120 105,152
Estimated deficiency P (11,520)

OR:
Est. cash available (P3,661+ 56,448 + 23,680+ 28,160 + 2,560) P 114,509
Less: total liab (3,200 +2,317+ 101,120+ 19,392) 126,029
Estimated deficiency P (11,520)
MULTIPLE CHOICE
2. D

Estimated cash available P290,000

Less: Prioritized claims:
Fully-secured liabilities P144,000
Partially-secured liabilities (Secured Portion) 20,000
Unsecured with Priority 10,400 174,400
Estimated net amount available to unsecured liabilities
w/o priority P115,600
Less: Unsecured Amounts:
Partially-secured liabilities (Unsecured Portion) 4,000
Unsecured w/o priority: Accounts payable 84,000
Notes payable – balance 82,000 170,000
Estimated deficiency to unsecured creditors w/o priority P(54,400)
Estimated recovery rate (ERR): P115,600 divided by P170,000 68%
MULTIPLE CHOICE

3. D

Notes Payable at TBV P 106,000

Less: Secured Portion 20,000 x 100% = P 20,000
Balance (unsecured Portion) P 86,000 x 68% = 58,480
Total estimated payment P 78,480
 MULTIPLE CHOICE
Items 4to 7
Cash on hand P 240,000
Less Prioritized claims:
Liquid Corp P 80,000
Fracon Bank (Secured Portion) 112,000
Decoy Publications (Secured Portion) 3,200
BIR Income Taxes 19,200 214,400
Amount available to unsecured liabilities w/o priority P 25,600
Less unsecured amounts:
Fracon Bank (Unsecured Portion) P 8,000
Decoy Publications (Unsecured Portion) 22,400
Jog Office 4,800
Nan-Star Electric 16,000 51,200
Estimated deficiency to unsecured creditors w/o priority P(25,600)

Est Recovery rate (25,600/51,200) 50%

MULTIPLE CHOICE
4. C

PSC :Fracon & Decoy

120,000 + 25,600 P 145,600
Less: Secured Portion 115,200 x 100% = P115,200
Balance (Unsecured) P 30,400 x 50% = 15,200
Total estimated payment P130,400

5. D

BIR account P 19,200

MULTIPLE CHOICE
6. A

Liquid corporation P 80,000

7. B
Jog office P 4,800
Nanstar Electric 16,000
Total 20,800 x 50% P 10,400
MULTIPLE CHOICE

Estimated total cash available P 467,600

Prioritized claims:
PSC (Secured portion) P180,000
With priority: Income taxes P 16,000
Salary payable 12,000
Adm expenses 40,000 68,000 248,000
Estimated net amount available P 219,600
Less Unsecured amounts:
PSC (Unsecured portion) P 60,000
Accounts payable 166,000
Bonds payable 140,000 366,000
Estimated deficiency to unsecured amounts (146,400)

Estimated recovery rate : P219,600/P366,000 60%

MULTIPLE CHOICE
8. A

Notes payable - Total Book Value P240,000

Less Secured Portion 180,000 x 100% P180,000
Balance (Unsecured Portion) 60,000 x 60% 36,000
Total P216,000
MULTIPLE CHOICE

Debt 2 P340,000

Less realized value of collateral 200,000 x 100% P200,000

Balance (unsecured portion) P 140,000 60% 84,000
Estimated payment to holders of Debt 2 P284,000
 MULTIPLE CHOICE
9. D
Estimated total cash available 1,416,000
Prioritized claims:
FSC P 240,000
PSC (Secured portion)
Debt 1 P 360,000
Debt 2 200,000 560,000
With priority 220,000 1,020,000

Estimated net amount available 396,000

Less Unsecured amounts:
PSC (Unsecured portion)
Debt 1 P 60,000
Debt 2 140,000 200,000
Unsecured w/o priority 460,000 660,000
Estimated deficiency to unsecured amounts

X / 660,000 = 60% X= 396,000

1,416,000- 360,000 – 200,000 – 280,000= 576,000

 MULTIPLE CHOICE
10. D

Total credits:
Assets Realized 1,920,000
Assets Not Realized 2,200,000
Liabilities to be Liquidated 3,600,000
Liabilities Assumed 2,600,000
Supplementary Credits 4,680,000 15,000,000

Less Total debits:

Assets to be Realized 2,200,000
Assets Acquired 1,200,000
Liabilities Liquidated 3,000,000
Liabilities Not Liquidated 2,720,000
Supplementary Chrages 5,000,000 14,120,000
Net gain P 880,000