Bax has been operating under Chapter 11 of the Bankruptcy Code for the past 15 months. On March 31, 2011, just before confirmation of its reorganization plan, Bax’s reorganization value is estimated at $2,000,000. A balance sheet for Bax prepared on the same date is summarized as follows:
Current assets.................. $ 750,000
Plant assets.................. 3,000,000
$3,750,000
Postpetition liabilities.............. $1,200,000
Prepetition liabilities subject to compromise * ..... 1,500,000
Fully secured debt............... 900,000
Capital stock.................. 900,000
Deficit..................... (750,000)
$3,750,000
* Represents allowed claims. The reorganization plan calls for payment of
$150,000 and issuance of $300,000 notes and $375,000 common stock in settlement of the prepetition liabilities.
REQUIRED
1. Does Bax qualify for fresh-start reporting on the basis of the reorganization value?
2. What other conditions must be met for fresh-start reporting? Show calculations.