Question One Liquidation and Reorganization

Pioneer Enterprises is bankrupt and being liquidated. The note payable was called after the company missed a large balloon payment. The lending institution petitioned for bankruptcy.

The liabilities and equity portion of Pioneers balance sheet are given below.

Current Liabilities
Accounts Payable	$6,600,000
Accrued Wages	300,000
Payroll Remittances Payable	100,000
Notes Payable	19,250,000
Total Current Liabilities	$26,250,000
Long-term Liabilities
Bonds	$14,000,000
Subordinate Debentures	8,500,000
Total Long-term Liabilities	$22,500,000
Shareholders Equity
Preferred Shares	$2,250,000
Common Shares	9,000,000
Total Equity	$11,250,000
Total Liabilities and Equity	$60,000,000

The book value of the assets was $60 million, but the realized value when liquidated was only $39.96 million, of which $7.99 million was from the sale of the firms office building.

No single wage claim exceeds $2,000. The bonds are secured by the office building. The debentures are subordinate to the notes payable. Inventory of $1,000,000 has been purchased in the last 30 days and the suppliers intend to reclaim it the inventory had been partially processed. The Receiver General is owed $100,000 in unpaid EI, CPP and income tax remittances.

Administration expenses associated with the liquidation were $4.9 million. The typical debt ratio in this industry is 35 percent.

REQUIRED: Complete the Excel Worksheet. Note that I have left some hints in the form of notes in the spreadsheet, so make sure you check them out.

1. Determine the distribution of the proceeds in liquidation.
2. How would the answer to Part 1 change if the notes payable were only $7,000,000?
3. How would the answer to Part 1 change if the funds available to the unsecured creditors were $45,000,000?
4. Suggest a proposal for reorganization for this company.

Note that you must modify the included spreadsheet so that if any numbers in Column B change, the rest of the spreadsheet will automatically recalculate and provide the correct numbers given this change.