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Chapter Fifteen

Corporate Reconstruction and

Reorganisation

1 Liquidation

Consider this option first by:

1) Realising all the assets at NRV

2) Paying off the liabilities in the correct legal
order:
a) Secured Creditors
b) Other Creditors
c) Preference S/H
d) Equity S/H

It is unlikely that there will be sufficient cash left to pay the equity s/h.
Also if there is not sufficient cash to pay all the ‘Other Creditors’ the
cash available must be pro rated across all of them.

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2 Reconstruction

There may well be a couple of these to consider. For each of them:

1) Revise the new list of assets

2) Ascertain the new list of creditors
3) Find the book value of the equity
4) Compute the MV of the equity using most likely the FCF model.

3 Discussion

Be ready to discuss each of the above in detail. You must consider the
return to both the creditors and equity holders.

Make a reasoned conclusion.

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Class Illustration – Corporate Reconstruction

Dricom Inc

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