Quiz 13: Accounting for Legal Reorganizations and Liquidations

Business

(1) Main provisions of the bankruptcy reorganization plan that bought the company out of Chapter 11: Refer to the HMH Inc. form 10-K from SEC filings to list out the main provisions of its bankruptcy reorganization plan as below: (1) A debt amounting to $3.1 billion would be eliminated. Thereby their annual interest expenses would be reduced by $250 million approximately. (2) The existing bank would be converted and bond debt into 100% of the equity in the reorganized company. Trade and other unsecured creditors will be paid in full and existing equity holders would receive warrants exercisable at 5% of the new equity. (3) The $500 million DIP facility will be converted into an exit facility. (4) The tenure of the term loan facility will be extended to six-year maturity that has a 101 soft call for one year. (5) The term loan would finally be priced at L+600, with a 1.25% LIBOR floor, and was offered at 98. (6) The company's pre-petition debt consisted of a $236 million revolver due 2013, and $300 million of 10.5% first-lien notes due 2019. (2) Sources provided the best information: The following are the sources that provide the best information regarding the reorganization plan: (a) Stakeholders including the creditors and other preferential parties to the organization. (b) The internet sources that provides the market information of the company. (c) The filings made by the company with the SEC.

Short report on the company and the problems and mistakes that led the company into insolvency and declaration of insolvency: An analysis of the reasons regarding why the organization becomes bankrupts gives the necessary information regarding the mistakes and problems faced by the organization. Thereby it will lead the entity to declare insolvent. As the process of insolvency is crucial, the coverage by media will give a deep impact to the stockholders. The following are the major problems and mistakes faced by the company that led the company to be insolvent: (a) Continuance of noncompliance of Chapter 11 requirements and consequences faced by the company for non-compliance. (b) The scope of turnaround plan initiated. (c) There exists a negative boom over the insolvency, the creditors of the organization started forcing the company CEO for quicker results. (d) The required performance and figures were not attained by the company that were reported in the SEC filings of the company. Even the accounting reforms initiated by the SEC also not made the justice. (e) The CEO realized the mistakes and makes an announcement about the reasons for the failure of the plan. (f) A last chance was given to the company to settle down its issues.

The objective of the bankruptcy laws in United States is: b. Distribute assets fairly and discharge honest debtors from their obligations. Explanation : The Bankruptcy Reform Act of 1978 as amended continues to provide the legal structure for most bankruptcy proceedings. It strives to achieve two goals in connection with insolvency cases: The main objective of bankruptcy law in U.S.A is the fair distribution of assets to creditors and to discharge an honest debtor form debt.

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