Page 11 - Bankruptcy and Reorganization Services
P. 11
Plan of Reorganization Capital Structure ..................................................................................................... 80
Chapter 12 — Valuation of Liquidated Debt in the Context of Financial Distress and Bankruptcy ......... 82
Chapter 13 — Assessment of Reasonably Equivalent Value and Solvency in the Context of Avoidance or
Recovery Actions ................................................................................................................................................. 85
Overview ........................................................................................................................................................... 85
Reasonably Equivalent Value ........................................................................................................................... 87
Application of SSVS No. 1 to Solvency Analyses ........................................................................................... 89
Premise of Value in the Context of Solvency Studies ...................................................................................... 90
Balance Sheet Test ............................................................................................................................................ 92
General .......................................................................................................................................................... 92
Valuation Approach ...................................................................................................................................... 93
Unreasonably Small Capital and Ability to Pay ............................................................................................... 97
Thin Capital or Unreasonably Small Capital Test ........................................................................................ 98
Ability to Pay Debts as They Come Due Test ............................................................................................ 104
Special Bankruptcy Considerations ............................................................................................................ 105
Chapter 14 — Additional Reorganization Value and Plan Confirmation Valuation Issues ..................... 109
Costs of Financial Distress.............................................................................................................................. 110
Adjusted Present Value (APV) and Capital Cash Flows ................................................................................ 111
Use of Net Operating Losses by the Reorganized Debtor and IRC Section 382 ............................................ 112
Tax on Cancellation of Debt Income .............................................................................................................. 114
Fresh-Start Reporting ...................................................................................................................................... 115
Valuation Approach .................................................................................................................................... 116
Valuation Timing Issues ............................................................................................................................. 116
Market Rate of Interest in "Cram Downs" ...................................................................................................... 117
Chapter 15 — Conclusion ................................................................................................................................ 120
Appendix 1 ......................................................................................................................................................... 121
Appendix 2 ......................................................................................................................................................... 125
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