Liquidation Analysis Builder
Every disclosure statement contains one, because Section 1129(a)(7) requires that each dissenting creditor receive at least its Chapter 7 liquidation value. This builds that analysis: book value by asset class, a recovery rate on each, less wind-down costs. The result is the floor a plan must clear — and the gap to going-concern value is the premium the reorganisation must justify.
Reading this model
- Book value
- Carrying value on the balance sheet. It is the starting point and almost never the realisable amount.
- Recovery rate
- What each asset class actually fetches in a forced sale. Receivables collect well; inventory depends on type and on whether you are selling alongside every other distressed seller in the same sector; fixtures and leasehold improvements are close to worthless; intangibles usually clear far lower than anyone expects.
- Wind-down costs
- Trustee and professional fees, severance, lease rejection and cure costs, GOB expenses, run-off insurance. In lease-heavy businesses this line is dominated by rejection damages, capped by section 502(b)(6) at roughly one to three years of rent.
- Net liquidation proceeds
- Gross proceeds less wind-down costs. This is the floor under section 1129(a)(7): every dissenting creditor must receive at least this much, or the plan cannot be confirmed.
- Going-concern premium
- Plan value less liquidation value. This is what the reorganisation has to justify. If it is zero or negative the plan fails the best-interests test — or the business genuinely has no going-concern value, which is the finding that converts a case into a wind-down.
- What to look for
- Which recovery rate would you contest? Inventory and intangibles are where the debtor has most discretion, and where a committee arguing for a higher floor pushes hardest, because a higher liquidation value raises the bar the plan must clear. For calibration: Bed Bath & Beyond's entire intellectual property cleared at $21.5mm against $4.4bn of book assets — about half of one percent.
The exercise
Open a real disclosure statement, find its liquidation analysis, and reproduce it here. Then ask which recovery rate you would contest. Inventory and intangibles are where the debtor has the most discretion and where a committee arguing for a higher floor will push hardest — because a higher liquidation value raises the bar the plan must clear.