AFAR: A Fastrack of Corporate Liquidation

CORPORATE LIQUIDATION(Quick Notes)

INSOLVENCY- it is an inability to pay off its liabilities as they become due and demandable. In Legal View, it is a financial condition in which the sum of all debts is greater than all of its assets at a fair valuation.

Voluntary insolvency- insolvent entity itself files a petition at Regional Trial Court, the debtor has insufficient assets to pay the debts in full, while Involuntary Insolvency-  the petitions is made by two or more creditors, and the debtor committed the act of solvency.

Role of Creditors- outside creditors appoint a trustee to manage the debtor’s state

Roles of trustees

   a.       Continue operating the debtor’s business if directed by the court

   b.      Realizes free assets of the debtor’s estate

   c.       Pay cash to unsecured creditors

Role of Accountant- concerned with proper reporting of the financial condition of the debtor and adequate accounting and reporting for the trustee.

Statement of Affairs- financial condition prepared for a corporation entering into the stage of liquidation or bankruptcy.

    1. Assets

a. Assets pledged with fully secured creditors- expected to realize an amount at least sufficient to satisfy the related debt.

b. Assets pledged with partially secured creditors- expected to realize an amount below the related debt.

c. Free assets- are not pledged and are available to satisfy the claims of creditors with priority, partially secured creditors, and unsecured creditors.

    2. Liabilities

a. Fully secured liabilities- expect to be paid in full as a result of their having sufficient collateral to satisfy the indebtedness.

b. Partially secured liabilities- have collateral, the proceeds of which are expected to be insufficient to satisfy the indebtedness.

c. Unsecured Liabilities with priority- have priority under the law (Section 50 Insolvency Law).

d. Unsecured Liabilities (General Creditors) - have no collateral relating to their indebtedness.

   3. Owner’s Equity Deficiency or Capital
      -balances summarizing the interest of the owners in the business are reported under the heading “Capital” or “Stockholder’ Equity.”

ESTIMATED RECOVERY %, OR DIVIDEND TO GENERAL UNSECURED CREDITORS=  NET FREE ASSETS/TOTAL UNSECURED CREDITORS

STATEMENT OF REALIZATION AND LIQUIDATION- an activity statement progress toward the liquidation of a debtor’s state. It shows the actual transactions that transpired during the period covered

Statement of Realization and Liquidation

Statement of Realization and Liquidation

Statement of Affairs

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AFAR: A Fastrack of Corporate Liquidation (Qoutes)