Corporate
--
Liquidation
Insolvency
The financial condition of a debtor that is generally unable to b. Liabilities
pay its or his liabilities as they fall due in the ordinary course
of business or has liabilities that are greater than its or his i. Fully secured creditors – these are
assets. liabilities secured by assets with
realizable values equal to or greater than
Kinds of Insolvency the liquidation value of such liabilities.
ii. Partially secured creditors – these are
1. Voluntary insolvency – an insolvent debtor owing
liabilities secured by assets with
debts exceeding in amount in the sum of P1,000,
realizable values less than the liquidation
may apply to be discharged from his debts and
value of such liabilities.
liabilities by petition to the RTC of the province or
iii. Unsecured liabilities with priority –
city in which he has resided for 6 months next
liabilities without collateral but are
preceding the filing of the petition.
designated by the law or logic to be paid
2. Involuntary Insolvency – an adjudication of
before any other debts of the
insolvency may be made by the petition of 3 or
corporation.
more creditors. residents of the Philippines, whose Administration expenses (e.g. administration
credits or demands accrued in the Philippines, for fee of trustee or receiver, liquidation cost, etc.)
the amount of which credits or demands are in the Unpaid employee salaries and wages and
benefit plans
aggregate of not less than ₱1,000 Taxes and assessments (i.e. income taxes,
business taxes, excise taxes)
Possible Recourse of Insolvent Corporation iv. Unsecured creditors without priority –
all other liabilities.
1. Liquidation
2. Reorganization
2. Statement of Realization and Liquidation – it is a
a. Recapitalization
periodic report that shows progress toward the liquidation
b. Quasi-reorganization
of a debtor' s estate. It is depicted like a T-account and
c. Corporate rehabilitation
contains:
d. Troubled debt restructuring
Corporate Liquidation
Liquidation is the termination of business operations or the
winding up of the affairs. It is a process by which:
….
1. Noncash assets are converted to cash (i.e.,
realization)
2. Liabilities of the business are settled (i.e.,
liquidation)
3. Any remaining amount is distributed to
shareholders
Financial Reports
1. Statement of Affairs – it is the initial report prepared
that emphasizes liquidation values and provides relevant
information for the trustee in liquidating the debtor
corporation. Unrecorded asset or liabilities are included.
a. Assets
i. Assets pledged to fully secured creditors – these
are assets with realizable values equal to or
greater than the liquidation value (i.e., book
value plus accrued interest) of the related
liabilities.
ii. Assets pledged to partially secured creditors –
these are assets with realizable values less than
the liquidation value of the related liabilities.
iii.Free assets – assets not used as collateral for an
obligation.
