This is the December 31, 2014 balance sheet for FD Co. Note that FD Co is headquartered in Toronto and all its operations are within Canada.

Here are some notes regarding balance sheet items:

1. Accounts receivable are likely to be 25% collectible while inventory has a realizable value of about 50%. The five bond holders have a floating security covering both. One of the bondholders is a hedge fund, Greedy Vulture Inc., which had acquired 20% worth of the total face value of the bonds outstanding at a deep discount of 95%!

2. The company owns property and a plant worth about $75,000 secured by a mortgage held by BMO and equipment with a realizable value of about $50,000.

3. There are two large accounts payable owed to Enbridge ($25,000) and Bell Canada ($10,000) which both have contracts with FD Co. to supply services and the balance of accounts payable is owed to 20 miscellaneous small suppliers. Enbridge, Bell Canada, and all other suppliers are ordinary unsecured creditors.

4. The salaries are payable to employees for wages with no more than $2,000 per employee outstanding.

Required - Please Answer:

a) Is FD Co. insolvent?

b) Assuming that FD is insolvent:

i. What insolvency legislation would they use for protection from their creditors?

ii. What are the categories of creditors represented and what would each receive in the case of an immediate liquidation of FD Co.? Assume the priority BIA priority sequence discussed in class.

iii. What support would be needed for a Plan of Arrangement to be approved for FD Co.?

c) In addition to current or potential balance sheet insolvency, the management of FD Co. is also concerned about its precarious cash balance. Accordingly, management wants to approach potential creditors for working capital financing during the restructuring. Explain briefly, under what pre-conditions would any potential lender agree to finance FD Co. during this restructuring phase. Is BMO likely to have a problem with such a financing arrangement and what is a potential solution to this problem?

d) What preference would Vulture have with regards to immediate liquidation vs. reorganization of FD Co.? Explain briefly.

Cash Accounts Rec Inventorv Prepaid Exp Current Assets Deferred taxes Prop, Plant & Equipment Total assets $13,000 $80,000 $150,000 $10,000 $253,000 $20,000 $225,000 S498,000 Accts. Payable Salaries Payable UIC, CPP &HST Pay Dividends Payable Current Liabilities Bonds Payable Mortgage Payable Total liabilities $140,000 $150,000 $40,000 $28,000 $358.000 $50,000 $30,000 $438,000 Equity Retained earnings Share capital Total Equity Total Liabilities and Equitvv $2.000 $58,000 $60,000 $498,000 Cash Accounts Rec Inventorv Prepaid Exp Current Assets Deferred taxes Prop, Plant & Equipment Total assets $13,000 $80,000 $150,000 $10,000 $253,000 $20,000 $225,000 S498,000 Accts. Payable Salaries Payable UIC, CPP &HST Pay Dividends Payable Current Liabilities Bonds Payable Mortgage Payable Total liabilities $140,000 $150,000 $40,000 $28,000 $358.000 $50,000 $30,000 $438,000 Equity Retained earnings Share capital Total Equity Total Liabilities and Equitvv $2.000 $58,000 $60,000 $498,000