CORPORATE LIQUIDATION Additional Information:

A corporate is considered insolvent when it is unable o Estate Deficit ang tawag sa SHE.
to pay its debts as they come due, o when its total o Definition of Corpo – artificial being created.
debts exceed fair value of its total assets. Kasi kapag namatay, estate ang next agad.
2 TYPES OF INSOLVENCY
4) STATEMENT OF RECEIPTS AND
 Equity Insolvency – the inability to make DISBURSEMENTS – parang statement of cash
payments in due course. flows of debtor corporation.
REMEDY: DEBT RESTRUCTURING
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DR is when you will ask the creditor to extend the
STATEMENT OF AFFAIRS – BS of Corpo ongoing
maturity, and condone the interest.
Liquidation
 Bankruptcy Insolvency – TOTAL LIAB > FV of
 Financial Condition prepared for a corporation
TOTAL ASSETS
entering into the stage of liquidation or
REMEDY:REHABILITATION,
bankruptcy.
REORGANIZATION, LIQUIDATION
 Report designed to show the ESTIMATED
TYPES OF INSOLVENCY AS TO FILING amount that would be received by each class
of claim in the event of liquidation.
 Voluntary – insolvent entity itself petitions in
 Prepared on the assumption of liquidation,
the Regional Trial Court that it be declared as
that is QUITTING CONCERN, not going
insolvent.
concern.
 Involuntary – petition is made by creditors.

PARTIES INVOLVED
ASSETS
 Regional Trial Court – oversees all aspects of
bankruptcy proceedings  Historical cost basis for assets loses its
 Creditors – appoints a trustee to manage the significance.
debtor’s estate  Realizable Value becomes the relevant
 Trustee – elected by the creditors or valuation basis.
appointed by the court who assumes custody  Conventional Classification (current and
of debtor’s non-exempt properties. non-current) loses its significance.
 Continue operating the debtor’s  Assets becomes APWFS, APWPSC, FA
business if directed by the court.
LIABILITIES
 Realize free assets of the debtor’s
estate.  Conventional Classification (current and
 Pay cash to the creditors. non-current) loses its significance bcs
 Accountant – concerned with proper babayarin mo din naman kahit beyond or
reporting of the financial condition of the within 12 months.
debtor and adequate accounting and  Liab becomes FSC, PSC, ULWP, ULWOP
reporting for the trustee.  Historical cost still has its value because
when there is liquidation, u will pay the
REPORTS TO BE PREPARED BY ACCOUNTANTS (4)
creditors based on its historical value.
1) STATEMENT OF AFFAIRS – parang balance
STOCKHOLDERS EQUITY
sheet of corpo going to liquidation
2) STATEMENT OF REALIZATION AND  Loses significance because companies in the
LIQUIDATION (SORAL) – parang income process of liquidation usually have a negative
statement ng corpo ongoing liquidation net worth.
3) STATEMENT OF ESTATE DEFICIT – parang
statement of changes in owner’s equity of the
debtor
 After mabayaran gamit ang TFA, ang tawag sa total is
NET FREE ASSETS.
CLASSIFICATION OF ASSETS AND LIABLITIES
What to with the NET FREE ASSETS?
Asset Pledged with Fully Px Px Partially Secured Creditors (g)
Secured Creditors (a)
(g) APWPSC is partnered with PSC.
Fully Secured Creditors (d) (x) (x) Asset Pledge with Partially
Secured Creditors (b)
Additional Info: How to identify if it is Partially
Free Portion (if ANY) (e) x x UNSECURED Portion (ALWAYS)
(h) Secured
Other Free Assets (c) x
- If the REALIZABLE VALUE of the ASSET is LESS
TOTAL Free Assets Px than of the BV of Liab (kasama accrued
Unsecured Liab WITH (x) x Unsecured Liabilities WITHOUT interest sa computation ng BV of Liab)
PRIORITY (f) PRIORITY - RV < BV of LIAB
NET FREE ASSETS Px Px TOTAL UNSECURED LIAB W/O
PRIORITY
(h) UP is yung hindi mo kaya bayaran. ALWAYS ito
meron kasi Partially ito. And isama mo ito sa
(a) These are assets with specific liability na naka UL-W/O Priority. (these are no specific asset
attached sa kanya na ipambabayad mo. na pambayad sa kanya. And at the same time
(b) Partially lang yung na sesecure nya don sa di nag ffall sa 3 Classification (Adm, Sal, Taxes)
liab.
(c) Walang specific liab na gagamitin. So pwede  If Net Free Asset < Unsecured Liab- W/O
sya freely pambayad kahit saan. Priortiy: ESTIMATED DEFICIENCY (bcs its not
(d) Magkasama ang APWFS at FSC. guaranteed na yun ang actual deficieny)
Additional Info: How to identify if it is Fully Secured How to allocate the Net Asset in the Unsecured? If
kulang pambayad mo or mas mababa net asset.
- If the REALIZABLE VALUE of the ASSET is
GREATER than or equal value of the BV of Liab  Recovery Percentage = Net Free Assets/
- RV > or = to BV of LIAB Unsecured Liab-W/O Prioritiy
- Sa kada pisong utang mo, ang kaya mo lg
Computing the BOOK VALUE OF LIABILITY
bayaran ay yung amount ng recover
- Include the ACCRUED INTEREST percentage. Ex 60%. (1 peso x .60)
- Meaning: sa kada pisong utang mo, ang kaya
IF the APWFC is sobra sa FSC, ang tawag sa sobra is
mo lg bayaran is 60 centavos.
(e) Free Portion, di pwede ibigay lahat sa
Why is there a need to compute for recovery
creditors kasi sobra ito. So, isama mo ito sa
percentage?
Other Free Assets and itotal mo to get the TFA.
After, tignan mo yung TFA if ever merong mga  LIMITED LIABILITY characteristics of
corporations kaya di pwede hingian ng
(f) Unsecured Liability WITH PRIORITY – walang additional inv same sa partnership.
direct asset na gagamitin pambayad sa kanila  The stockholders and corporation are two
unlike the fully secured. Mag aantay lang to sa separate entities unless there is a piercing the
total free assets or doon huhugutin ang veil of corporate doctrine.
pambayad dito.
 Deficiency Percentage = Estimated Deficieny/
Additional Info: Who are the UL-W-Prio (WHY
Unsecured Liab. w/o Priority. Or 1 Minus
PRIORITY?)
RECOVERY PERCENTAGE
 Administrative Expenses – kasi di gagalaw ang  The percentage will be the yung hindi mo
liquidation kung di mo babayaran ang trustee kayang bayaran in the book value of liab.
for the expenses he or she might be incurring
in connection with the liquidation.
 Salaries/Wages – bcs labor code ito. Need
bigyan pasahod ang employees. Mandatory.
 Taxes – mandatory ang taxes.
 PAYMENT DISTRIBUTION

 Fully Secured Creditors = 100%

 Partially Secured Creditors
o For the secured part = 100%
o For unsecured part = unsecured part x
recovery % (this will be the total
payments of partially secured creditor)
 Unsecured WITH PRIORITY = 100%
 Unsecured W/O PRIORITY = unsecured liab
w/o priority x recovery %

TOTAL PAYMENTS TO CREDITORS: Total the 4 Bullets.

1:52:30

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PROBLEM 1
STATEMENT OF REALIZATION AND LIQUIDATION
STRATEGY: First answer the liabilities then connect it (SORAL) (Income Statement undergoing liquidation)
to the assets pledged to it.
 An activity statement that is intended to show
Asset Pledged with Fully Px Px Partially Secured Creditors progress, i.e ACTUAL TRANSACTIONS toward
Secured Creditors (a) (g)
the liquidation of a debtor’s estate.
500K 165k
Land & Building  Its original purpose is to inform the
Notes Payable
Fully Secured Creditors (410K) (110k) Asset Pledge with bankruptcy court and interested creditors of
(d) Partially Secured the accomplishment of the trustee.
Creditors (b)
Free Portion (if ANY) (e) 90k 55k UNSECURED Portion COMPARISON of Statement of Affairs versus SORAL
(ALWAYS) (h)
Other Free Assets (c) 627,800
SOA
TOTAL Free Assets P717,800
o BASED ON: ESTIMATES
Unsecured Liab WITH (79,800) 670k Unsecured Liabilities o PROVIDING: Summary of Estimated results of
PRIORITY (f) WITHOUT PRIORITY
a completed liquidation
NET FREE ASSETS P638,000 P725k TOTAL UNSECURED LIAB
W/O PRIORITY
SORAL

o BASED ON: ACTUAL LIQUIDATION RESULTS

SHORTCUT FOR TOTAL ESTIMATED PAYMENT TO
CREDITORS: ADD ALL ESTIMATED REALIZABLE VALUE.
o PROVIDING: Ongoing reporting of trustee’s
activities and is updated throughout the
BUT MAY CONDITION ITO: GAGAMITIN MO LG ITO liquidation process.
PROVIDED THE NRV IS LESS THAT THE BV OF LIAB.
 Assets (Excluding Cash)
(bcs cash is already STATEMENT OF RECEIPTS AND DISBURSEMENTS – CASH FLOWS
realized(means converting to cash) na kaya no need isali) COMPUTATION OF CASH, END
Assets to be Realized (Beg)(a) Assets Realized (c) (SP) Cash, Beg Px
(BV) Receipts x
(the individual assets to which (proceeds received from the conversion of Disbursements (x)
the trustee has taken title from specific assets) Cash, End Px
the debtor)
What to do if some data are not available?
- use accounting equation
Cash Beginning Px
Assets Acquired (b) (BV) Assets not Realized (End) (e) (BV)
Asset to be Realized (NCA, Beg) X
(assets discovered from operating (assets remaining with the trustee at the TOTAL ASSETS, Beg X
activities during the period) end of the reporting period) Liabilities to be liq (Liab, Beg) (x)
Estate Equity/ Deficit, Beg PX

(a) ATB: noncash assets beg

(b) ACQ: Functions of Trustees (3): realized the assets, pay the Cash End Px
creditors, continue operating. If trustees continue the
Asset NOT Realized (NCA, End) X
operations, and may mga nadiscover or na acquire sya na
TOTAL ASSETS, Ending X
assets, parang additions nalang ito.
(c) AR: Assets na nabenta at PROCEEDS amount and not the Book
Liabilities not liq (Liab, End) (x)
Value. Estate Equity/ Deficit, End PX
(d) ANR: noncash asset ending or not nabenta at the end of period. Assets to be Realized (Beg)(a) (BV) Assets Realized (c) (SP)
Find mo beginning and additional assets then remove yung mga A/R 80k 84k A/R -Proceeds (gain 4k)
nabenta to get the BV. MI 160k 152k MI – Proceeds (loss 8k)
Inv in CS 26,400 26,000 Inv in CS – Proceeds (loss 400)
Additional Information: Land 100k
 May BALANCING FIGURE na maiiwan jan, yun aang palalabasin Building 60k 262k TOTAL 4,400 Loss
natin na Loss or Gain on Realization. Machine & Equipment 48k
TOTAL 474,400
 Kaya naka SP ang AR, ang difference nya sa BV is magiging force
balance para maging loss or gain on realization. Assets Acquired (b) (BV) Assets not Realized (End) (e) (BV)
0
100k Land
Liabilities 60k Buildiing
48k Machine & Equipment
Liabilities liquidated – magkano Liabilities to be liquidated (Beg) 208k TOTAL
mo binayaran
(liabilities paid by the trustee) (liabilities that the trustee took Problem IV – COMPREHENSIVE
responsibility at the date of appointment)
Liab Liq Liab to be liq (Beg)
Bank Loan 26k 244k NP
Salaries and Wages 40k 288k AP
Taxes Payable 8k 40k Salaries & Wages
TOTAL 74k 8k Taxes Payable
Liabilities not liquidated Liabilities Incurred Supplementary Charges Supplementary
180k Credits
Bank Loan
(end) 0 760k TOTAL
(remained to be paid by the (liabilities incurred by the trustee for Admin Exp – 7,440
trustee) operating activities during the period)
Liab not liq Liab incurred

NP 244k 0
Revenue and Expenses (SHE) AP 288k
Bank Loan 154k
Supplementary Charges Supplementary Credits TOTAL 686k
(excluding assets losses on (revenue excluding gains on assets
realization and write-offs) realization and liability settlements)

____________________________________________
Additional Info: Why di sinama sa liability incurrred ang Admin
STATEMENT OF ESTATE DEFICIT – SHE ang datingan
exp? – pwede naman sya ilagay pero sabi ng problem, binayaran
COMPUTATION OF ESTATE DEFICIT, END di naman agad so kasama din sya sa liab liquidated.
Estate Equity/ Deficit, Beginning Px
Net Loss (gain) on realization of assets X If isasama, tataas lang ang total debits and total credits pero by
Unrecorded Expenses X same amount kaya no effect if kasama siya.
Estate Equity/ Deficit, end Px
TOTAL DEBIT: 1,241,840 (NET LOSS PAG LAMANG DEBIT)
TOTAL CREDIT: 1,230,000
ANS: 11,840 LOSS OR
  LOSS ON REALIZATION + SUPP CHARGES
 4,400 (NET LOSS PALANG) to be NET LOSS IN
REALIZATION, dapat my unrecorded expenses which is
the 7440 on SUPP CHARGES.

 4,400 + 7440 = 11,840 LOSS

1) DEFICIT BEGINNING: (173,600)

NET LOSS ON REA: (11,840)
ESTATE DEFICIT, END: (185,440)
LIAB TO BE LIQ: 686,000
TOTAL ASSETS: 500,560
ANR(NCA,END) (208k)
CASH END: 292,560

CASH BALANCE using ACC EQUATION

Cash End P292,560

Asset NOT Realized (NCA, End) 208,000
TOTAL ASSETS, Ending 945,440
Liabilities to be liq (Liab, End) (686,000)
Estate Equity/ Deficit, End (185,440)

Or

COMPUTATION OF CASH, END

Cash, Beg 112k
Receipts 262k
Disbursements (81,440)
Cash, End P292,560