Page 153 - Bankruptcy Volume 1
P. 153
Appendix D
Effects of Substantive Consolidation on Payments to Creditors: An Illustration
To illustrate the effects of a substantive consolidation, consider the following two hypothetical compa-
nies, Parent A and Subsidiary B. The estimated market values (not book values) of the assets and liabili-
ties of the two companies are as follows.
Parent A
Assets
Cash $ 1,500
Accounts receivable 175,000
Real estate 1,400,000
Property, plant, and equipment 450,000
Patents and trademarks 100,000
Total assets $ 2,126,500
Liabilities
Intercompany claim (Subsidiary B) $ 174,000
Accounts payable 800,000
Notes payable on real estate 1,500,000
Unsecured line of credit 450,000
Contingent claim 1,700,000
Total liabilities $ 4,624,000
Assuming minimal administrative expenses, the estimated return to unsecured creditors for Parent A is
approximately 22.5%.
Total assets $ 2,126,500
Less: secured asset (real estate)* (1,400,000)
Assets available for distribution $ 726,500
Total liabilities $ 4,624,000
Less: secured liabilities to amount of real estate value (1,400,000)
Unsecured debt $ 3,224,000
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