Page 155 - Bankruptcy Volume 1

Total assets:

Parent A $ 2,126,500
Subsidiary B 3,574,000
Less: secured asset Parent A (1,400,000)

Less: secured assets Subsidiary B (asset is only reduced by portion of secured debt at- (1,600,000)
tributable to asset value and not entire secured debt)
Less: intercompany receivable (the intercompany receivable is removed in consolidation) (174,000)
Assets available for distribution $ 2,526,500

Total liabilities:

Parent A $ 4,624,000
Subsidiary B 4,120,000
Less: secured liability
Parent A (1,400,000)

Subsidiary B (only to amount of real estate value) (1,600,000)
Less: intercompany payable (174,000)
Unsecured debt $ 5,570,000

Estimated payout of substantively consolidated estate = $2,526,500/$5,570,000 = 45%.

As this example illustrates, unsecured creditors of both estates are concerned about whether Parent A
and Subsidiary B will be consolidated substantively because the consolidation will double the payout for
Parent A’s unsecured creditors (23% versus 45%) and reduce substantially the payout for the unsecured
creditors of Subsidiary B (45% versus 73%).

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