Bankruptcy and Insolvency Accounting, Volume 2

Grant W. Newton, CPA, CIRA, CMA, is Professor of Accounting at the Graziadio School of Business and Management at Pepperdine University and is Executive Director of the Association of Insolvency and Restructuring Advisors. He is the author of Corporate Bankruptcy: Tools, Strategies, and Alternatives (2003) and Bankruptcy and Insolvency Taxation (2005), both from Wiley. His articles have appeared in a large number of professional periodicals. He received his PhD from New York University, Master's from the University of Alabama, and BS from the University of North Alabama.

• About the Author viiPreface xvPart One Bankruptcy and Insolvency Environment 11 Accountant’s Role in Perspective 31.1 Parties Served by Accountants and Financial Advisors 31.2 Services Often Rendered by Accountants and Financial Advisors in Business Turnarounds, Bankruptcies, and Reorganizations 42 Economic Causes of Business Failures 72.1 Illustration of Altman’s Z-Scores (REVCO) 7Part Two Legal Aspects of Bankruptcy and Insolvency Proceedings 173 Turnaround Process 193.1 Turnaround Tool Box, Situation Analysis, First Few Weeks 193.2 Turnaround Tool Box, Situation Analysis Checklist 203.3 Turnaround Tool Box, Peer Group Analysis 383.4 Turnaround Tool Box, Cash Flow Analysis 434 Out-of-Court Settlements 494.1 Composition or Extension Agreement with Creditors 494.2 Agreement with Creditors and Debtor and Debtor’s Solicitation Letter (Disclosure Statement) 604.3 Settlement Agreement with Creditors—Out-of-Court 664.4 Restructuring Significant Amount of Debt Out of Court 794.5 Recapitalization of Partners Interest with Purchase of New Equity 814.6 Court Order Approving Blue Bird’s Prepackaged Bankruptcy 875 Nature of Bankruptcy and Insolvency Proceedings 975.1 Voluntary Petition 975.2 Section 503(b)(9) Motion and Order to Pay Critical Vendor Claims 1175.3 Section 503(b)(9) Motion and Order to Pay 503(b)(9) Expenses 131Part Three Accounting Services 1436 Rehabilitation Proceedings under the Bankruptcy Code 1456.1 Motion and Order Authorizing the KMIP Plan of Reorganization Metric Payment 1456.2 Checklist for Determining the Merits of Substantive Consolidation 1606.3 U.S. Trustee’s Opposition to Appointment of Interim CEO and Request for Trustee Appointment 1636.4 Application for Order Approving Appointment of Trustee 1716.5 Appointment of Examiner with Expanded Powers 1786.6 Appointment of Examiner or Mediator in Plan Negotiations 1856.7 Cash Collateral Order 1936.8 Use of Cash Collateral and Debtor-in-Possession Financing for Tower Automotive 1976.9 Priming of Prepetition, First Lien 2186.10 Bankruptcy Court Guidelines/Orders for Motions Relating to Financing Agreements 2186.11 Debtor-in-Possession Financing Agreement: No. 1 2276.12 Disclosure Statement 2446.13 Data Checklist for DIP Financing 2756.14 Factors Determining Success of Plan 2766.15 Plan of Reorganization 2806.16 Disclosure Statement Review Checklist 3206.17 Sample Disclosure Statement by Unsecured Creditors’ Committee (Selected Items) 3236.18 Sample Disclosure Statement for Involuntary Filed Petition (Selected Data) 3706.19 Standing Chapter 12 Trustee’s Instructions to Debtor’s Counsel 3897 Retention of the Accountant and Fees 3937.1 Protocol: Separating Interim Management from Financial Advisory Functions 3937.2 Declaration of Financial Advisor in Support of Debtors’ Application to Be Retained to Provide Fresh Start Reporting and Valuation Services 3967.3 Affidavit for Retention of Financial Advisor for Debtor 4207.4 Affidavit of Accountant for Unsecured Creditors’ Committee 4377.5 Affidavit of Investment Banker Filed Prior to Retention by Debtor 4417.6 Debtors’ Application for Retention of Financial Advisor to Provide Fresh Start Reporting and Valuation Services 4787.7 Application by Debtors for Authorization to Retain Financial Advisor 4887.8 Application for Order Authorizing Retention of Accountants and Financial Advisors for Trustee 4927.9 Application Retaining Financial Advisor for Unsecured Credit Committee 4997.10 Declaration of Subsequent Connections 5447.11 Order Authorizing Retention of Financial Advisor to Provide Fresh Start Reporting and Valuation Services to Debtors 5777.12 Order for Retention of Financial Advisor for Debtors 5807.13 Order Authorizing Retention of Accountants and Financial Advisors for Trustee 5837.14 Accountant for Debtor 5857.15 Accountant’s Affidavit Requesting Retention on a Retainer as Accountant for the Debtor 5907.16 Procedures for Establishing Monthly Compensation and Reimbursement of Expenses of Professionals 5927.17 Guidelines for Reviewing Applications for Compensation and Reimbursement of Expenses 5967.18 District of Delaware Local Rule 2016-2 Motion for Compensation and Reimbursement of Expenses 6027.19 Petition for Fee Allowance and Reimbursement of Expenses 6048 Accounting and Financial Services for the Debtor-in-Possession or Trustee: Part I 6358.1 Order Authorizing Use of Present Cash Management System and Bank Accounts 6358.2 Sample Application for Order to Pay Prepetition Wages 6598.3 Sample Application Allowing Payments to Retail Customers (Warranty Claims) 6948.4 Sample Application for Order to Honor Accrued Vacation Days, Sick Leave, and Other Personnel Policies 6968.5 Employee Questions and Answers 6988.6 Schedules 7018.7 Statement of Financial Affairs 7548.8 Rules for Filing Operating Statements 7958.9 U.S. Trustee Requirements 8078.10 Compensation for Insiders 8108.11 Operating Statements Guidelines 8128.12 SEC Reporting 8208.13 Pro Forma Financial Statements and Projections 8268.14 Excerpts from Report on “Investigation of Related Party Transactions and Perquisites” 8399 Accounting Services for the Debtor-in-Possession or Trustee: Part 2 8479.1 Business Plan 8479.2 Motion for Protective Order Authorizing Debtor to File Part of Business Plan Under Seal 8599.3 Valuation and Financial Projections 8669.4 Voting Procedures 87110 Accounting Services for the Creditors’ Committee 88110.1 Sample Report to Creditors’ Committee 88111 Valuation of a Business in Bankruptcy Proceedings 88911.1 Selection of Interest Rate for Valuation? 88911.2 Liquidation Value Under Chapter 7 90311.3 Example of Reorganization Value Determined by Discounted Cash Flows 91911.4 Determination of Value in Chapter 11 Case 92511.5 Present Fair Salable Value, Liquidation in Place, and Orderly Liquidation 968Part Four Auditing Procedures and Reports 97512 Audit Procedures and Special Areas of Inquiry 97712.1 Report on Special Investigation 97712.2 Audit Program Guide 98313 Financial Reporting During Bankruptcy 100313.1 First Financial Statements Issued During Chapter 11: Buffets 100313.2 Financial Statements Issued During Chapter 11: Dura Automotive 101113.3 Liabilities Subject to Compromise 103314 Reporting Results of the Plan 103714.1 Fresh-Start Reporting: Sunbeam-Oster 103714.2 Financial Statements Based on SOP 90-7 104414.3 Pro Forma Balance Sheet of USG Corporation 107115 Reporting on an Insolvent Company 108315.1 Example of Unqualified Opinion Containing Uncertainty About Going Concern 108315.2 Example of Unqualified Opinion Explaining the Ability to Continue as a Going Concern 108415.3 Sample of a Qualified Opinion with “Except for” Wording for Departure from GAAP 108815.4 Sample of a Disclaimer of Opinion Issued to Creditors’ Committees and in Chapter 11 Reorganizations 108915.5 Example of Adverse Opinion for Material Departures from GAAP 109715.6 Report in Connection with Claims of Creditors 109815.7 Report for Agreed-on Procedures Relating to Leveraged Buyout Transactions 109915.8 Examination Report for Projected Financial Statements 110215.9 Compilation Report for Projected Financial Statements 110315.10 Disclaimer of Opinion on Projected Financial Statements 1104Part Five Taxes 110716 Tax Awareness 110916.1 IRS Form 1041 110916.2 IRS Form 982 110916.3 Impact of Taxes on Potential Plan of Liquidation in Chapter 11 Proceeding 110916.4 Tax Impact of Plan of Chapter 11 Corporate Reorganization 1121