Unformatted text preview: ibility is the valuation of the firm to
determine whether reorganization is appropriate.
• To do this DIP must estimate both the liquidation
value of the business and its value as a going
• If the DIP finds that its value as going concern is
less than its liquidation value, it will recommend
• If the opposite is found to be true, the DIP will
• If the reorganization of the firm recommended by
the DIP, a plan of reorganization must be drawn up.
the • The key portion of reorganization plan generally
concerns the firm’s capital structure.
• Because most firm’s financial difficulties result
from high fixed charges, the company capital
structure is generally recapitalized , or exchanged
for equity, or the maturity of the existing debts are
• Optimal capital structure has been determined,
the DIP must establish a plan for exchanging
outstanding obligations for new securities.
•Once the DIP has determined the n...
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