CORPORATE LIQUIDATION

What is Corporate Liquidation?

refers to the process of winding up the affairs
of the corporation by settling its corporate
debts and distributing the remainder to the
stockholders
FINANCIAL REPORTS
Statement of Affairs

Normally, at the start of liquidation, a

Statement of Affairs is prepared for
the corporation to provide information
about the current financial position of
the company.

The Statement of Affairs is not a

going-concern report; it is an
important planning report for the
anticipated liquidation of the
company.
FINANCIAL REPORTS
Statement of Realization and Liquidation
It is an activity statement progress toward the liquidation of a debtor's estate. It shows the
actual transaction that transpired during the period covered. It also informs the proper
authorities and interested creditors of the accomplishments of the trustee.
FINANCIAL REPORTS
Statement of Realization and Liquidation
Estimated Recovery Percentage of
Unsecured Creditor Without Priority
Classification of Assets
in Liquidation
ASSETS PLEDGED TO FULLY SECURED
CREDITORS

 Certain assets may be pledged as securities for a particular liability, and the
estimated realizable value of the assets equals or exceeds the amount of the
liability.

Example: A land with realizable value of 1 million, which secures a mortage payable
of 800,000.

Land (Asset) 1,000,000

Mortgage (Liability) 800,000
Free Asset 200,000
ASSETS PLEDGED TO PARTIALLY SECURED
CREDITORS

 Other assets that are pledged as security for a particular liability and the
realizable value of the assets is less than the amount of the liability.

Example: A machinery with realizable value of 600,000, which secures a note payable
of 750,000.

Machinery (Asset) 600,000

Note Payable (Liability) 750,000
Unpaid Portion 150,000
FREE ASSETS

 Assets that are not pledged as security for any particular liability, thus,
available to meet the claims of the following creditors:
a. Creditor with priority
b. Partially secured creditors – unpaid portion only
c. Unsecured creditors
 Classification of
Liabilities in Liquidation
Unsecured Liabilities with Priority

 When creditor has no lien on any specific assets of the debtor

corporation, but its claims rank ahead of other unsecured
liabilities in the order of payment. These liabilities, in order of
priority are:
a. Administrative expenses of the receiver
b. Unpaid employee’s salaries and wages, and benefit plans
c. Taxes
Fully Secured Creditors

 The creditor has a lien on specific assets, whose

estimated realizable value exceeds the amount of the
liability.
Partially Secured Creditors

 The creditor has a lien on specific assets but the

estimated realizable value of those assets are less than
the amount of the liability.
Unsecured Creditors

 All other liabilities for which the creditor has no lien on

any specific assets of the corporation.