CASE STUDY

For many years, the Specialty Mfg. Company carried on business as a manufacturer of consumer products. In 2001, it embarked on an ambitious program of expansion that involved the acquisition of a new plant and equipment. Financing was carried out by way of real property mortgages, chattel mortgages, and conditional sale agreements, with very few internally generated funds used for the expansion.

By 2003, a general decline in demand for its product line due to a poor economic climate placed the company in a serious financial situation. As a result of a failure to pay a trade account to one creditor, bankruptcy proceedings were instituted. Specialty Mfg. did not object to the proceedings, and did not make a proposal to its creditors.

The trustee disposed of the assets of the company and drew up a list of creditors entitled to share in the proceeds. His preliminary calculations were as follows:

Sale of assets, etc.

Sale of land and buildings $350,000

Sale of production equipment 35,000

Sale of trucks & automobiles 25,000

Sale of inventory of finished goods, etc. 30,000

Accounts receivable 48,000 $488,000

Expenses and Creditor claims

(all secured claims properly registered)

1st mortgage on land and buildings $290,000

2nd mortgage on land and buildings 45,000

3rd mortgage on land and buildings 40,000

1st chattel mortgage on trucks & automobiles 22,000

2nd chattel mortgage on trucks &automobiles 40,000

Bank claim under s. 427 of Bank Act 25,000

Unsecured trade creditors 60,000

Unpaid wages (10 employees@ $300 each) 3,000

Unpaid commissions to salespeople 1 @ $1,500 1,500

Bankruptcy expenses, fees& levy 39,000

Unpaid municipal taxes 9,000

Production equipment conditional sale agreement 10,000

$584,500

Calculate the distribution of the funds to the various creditors and calculate the cents per dollar amount that the unsecured trade creditors would receive.