There has been a major global crisis, and your company’s board of directors has

ID: 2722947 • Letter: T

Question

There has been a major global crisis, and your company’s board of directors has announced that the company is going bankrupt. No one could have seen this one coming. Your CEO has called you in to his office to start the insolvency process. Based on the latest published financial statements, your job is to come up with a plan that will be used to inform the company, its shareholders, and its creditors.

A. As your company’s controller, compose a summary report to your CEO advising him on the effects of the insolvency.

B. From a global perspective, what effects would the insolvency of your company have on the U.S. economy as well as the global economy (i.e., other countries)?

C. Construct a worksheet for the CEO showing the effects of the insolvency on the company, shareholders, and creditors.

Explanation / Answer

A) Effects of insolvency:

In the event of the company becomes insolvent each group of stakeholders including the company’s employees and the management must make themselves aware of some specific matters. Group of Directors may be personally liable for debts incurred by company if it trades while insolvent. The company may be liable for the debts of the subsidiary if it allows the subsidiary to trade while insolvent. Directors may be personally may be personally liable for unpaid taxes.

During the insolvency the value of the security is at risk. Securities taken after the company becomes insolvent may be invalid. During insolvency there is an appointment of voluntary administrator. Anyone who instructs Directors may be deemed to be directors and may also be personally liable for debts of company if it trades while insolvent.

There is increased risk of personal claims and directors disqualification. There can be winding up petition from the creditors (they demand payments from the company).Any disposal of assets would be void once the winding up petition is in progress. There can withdrawal of support from supplies and customers. Transactions can be reviewed and reversed.

B) The insolvency can create a some sort of panic in the financial markets which can halt the growth of the US economy. If the company is doing global exports and imports then it insolvency can affect the global exports and imports markets and therefore the GDP of the countries. The insolvency can also affect the subsidiaries (in case the company is truly global with foreign subsidiaries) in the foreign markets with the liquidation of the subsidiaries the growth of the country in which they operate can be affected. The liquidation of company can result in loss of confidence among the investors for the growth of the economy therefore the companies in the similar industry can be affected this in turn can further hamper the growth.

Effects of insolvency: Company creditors shareholders 1)Liquidation/winding up 1)have power to appoint external admin. 1)they have claim after creditors 2)Voluntary Administration 2)they are first to be paid during the liquidation 2)receives no Dividends unless creditors are paid 3)Receivership:sell assets 3)secured paid first thereafter the unsecured creditors 3)No right to vote in future of company

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There has been a major global crisis, and your company’s board of directors has

There has been a major global crisis, and your company’s board of directors, Tar

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There has been a major global crisis, and your company’s board of directors has

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