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					Question Set No. Student Exam No. PEPPERDINE UNIVERSITY School of Law FINAL EXAM: Business Reorganization in Bankruptcy Part 1, Multiple Choice SPRING 1996 PROFESSOR NO. OF QUESTIONS: 30

TOTAL NO. OF PAGES: 16 Scarberry

1.

INSTRUCTIONS Each question has four possible responses, (a), (b), (c), and (d). Please indicate the best response even if you do not believe that any response is absolutely and perfectly correct. Scoring is based on the number of correct responses, so indicate a response to each question even if you have to guess. YOU MAY WRITE ON THIS QUESTION SET BUT ANSWERS MUST BE INDICATED ON THE ANSWER SHEET TO BE COUNTED. Some facts apply to questions that are not on the same page as the facts. You may pull this Question Set apart if you wish, so that you will not have to flip back and forth but can have the facts and questions in front of you at the same time. You are permitted to use the statutory supplement (annotated as you wish) and a calculator on this portion of the examination, but nothing else. A copy of page 787 of the text, which includes the present value tables, is attached to this Question Set at the end. You must write your student examination number in the space at the top of this page and return all pages of this Question Set with your answer sheet and all scratch paper at the end of this portion of the examination. You must also write in the "hour" blank on your answer sheet the Question Set number shown above. You are not permitted to write anything in your statutory supplement during this multiple-choice portion of the exam. Failure to follow these directions will result in a score of zero. Removal from the examination room at any time of your answer sheet, all or any portion of these questions, or any scratch paper violates the Honor Code and will also result in a score of zero.

2.

3.

4.

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1.

DexCo filed its chapter 11 petition on April 22. As of that date DexCo had slightly more than $100,000 in its checking account at First Bank and also owed First Bank $250,000. The $250,000 debt had come due in full on April 15; DexCo had not paid it and thus was in default as of April 15. On April 23 DexCo wrote a $100,000 check on its First Bank checking account; the check was made payable to Second Bank and was delivered to Second Bank, where DexCo had opened a new checking account as debtor in possession. On April 24 Second Bank delivered the check to First Bank and asked First Bank to pay it. The result, if First Bank pays the check, will be that DexCo will have $100,000 in its new checking account at Second Bank and almost nothing left in its account at First Bank. First Bank's president has called you frantically, seeking advice. What advice will you give First Bank's president? (a) (b) You must pay the check or else you will be in violation of the automatic stay for having exercised control over property of the estate. You may not refuse to pay the check, even if you immediately seek relief from the stay to permit you to set off the checking account balance against the $250,000 debt, because that would be a prohibited act taken to recover a prepetition debt against the debtor. You may refuse to pay the check and may immediately set off the amount in the checking account against the $250,000 debt, with the result that the debt will be reduced to a little less than $150,000, and the balance in the checking account will be reduced to zero. You may refuse to pay the check, at least if you promptly seek relief from the stay to permit you to set off the checking account balance against the $250,000 debt.

(c)

(d)

2.

Dastardly Developers, Inc. (DDI) contracted with Acme General Contractors (Acme) for Acme to build an office building on a parcel of land (Greenacre) owned by DDI. Acme in turn contracted with PlumbCo, a plumbing subcontractor, for PlumbCo to install the plumbing in the building. PlumbCo and DDI thus did not have a contract with each other. PlumbCo did its work but was not paid the $200,000 it was owed by Acme, because DDI did not make the payments to Acme required by the contract between DDI and Acme. PlumbCo took the proper steps and thus obtained a mechanic's lien (a type of statutory lien) on Greenacre to secure the $200,000 obligation. Assume the lien is valid in bankruptcy. Later DDI filed a chapter 11 petition. Greenacre is worth $1,500,000. The only liens on it are a first mortgage for $1,000,000 held by World Bank and PlumbCo's mechanic's lien. Is PlumbCo entitled to have postpetition interest added to the amount of its secured claim? (a) Yes, because postpetition interest is allowable to oversecured creditors even if there is no agreement to pay interest. (b) No, because secured claims are disfavored in bankruptcy. (c) Yes, assuming the contract between Acme and PlumbCo requires Acme to pay interest if it does not pay PlumbCo in a timely way. (d) No, because postpetition interest and reasonable fees, costs, and charges are allowable to oversecured creditors only pursuant to agreement, and here there was no agreement at all between PlumbCo and DDI.

THE FOLLOWING FACTS APPLY TO QUESTIONS 3 THROUGH 7: Sid owns all 4,000 shares of DillCo, a pickle processing corporation. DillCo is in chapter 11 and is about to seek confirmation of a proposed plan. The estate includes DillCo's pickle processing plant, which is worth $300,000, and other property. Franky holds the only mortgage on the plant. The mortgage carries a very low 4% interest rate. DillCo, with the court's permission, has continued to make payments on the mortgage during the chapter 11 case. As of the effective date of the proposed plan, assuming it is confirmed, the balance owed on the mortgage will be $200,000, and the mortgage will have twenty years

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left to run, according to the schedule set forth in the mortgage documents signed by DillCo and Franky five years ago when Franky made a loan to DillCo and took the mortgage on the plant. A present day fair market interest rate for such a mortgage would be much higher than 4%; the present value of the twenty remaining years of payments under the mortgage is thus less than $200,000, and is in fact $150,000. The mortgage documents permit DillCo to pay off the mortgage at any time without penalty and also include a "due on" provision. The "due on" provision provides that if DillCo sells the plant or if a majority of the shares of DillCo are sold, then the mortgage will be immediately due and payable in full. (Assume that such a "due on" provision is enforceable under nonbankruptcy law.) DillCo owes $1,000,000 in general unsecured claims. Of that $1,000,000, Dillco owes $600,000 total to 12 different trade creditors, each of whom has one claim, and $400,000 to Sid, who also has one claim. (Sid not only owns all of DillCo's stock but also lent DillCo money in legitimate loan transactions. There is no basis for equitably subordinating Sid's claim.) DillCo's proposed plan places Franky's secured claim in Class A, all of the prepetition unsecured claims in Class B, and Sid's stock ownership interest in Class C. The plan provides for payment of administrative expenses, which total $100,000, in full in cash on the effective date of the plan. The only administrative expense claims are for the services of the attorneys and accountants that are working for debtor in possession DillCo and for the unsecured creditors' committee. The plan provides that Franky's rights under the mortgage will not be affected, except that the "due on" provision will be eliminated. The plan provides that holders of claims in Class B will receive 10% payment in cash on the effective date; seven year promissory notes (carrying a fair market interest rate) in an amount equal to 15% of their claims; and one share of stock in the reorganized DillCo for each $1,000 of claims. The plan also provides that Sid will receive one share of stock in the reorganized DillCo for each two shares that he presently owns. The court has determined that DillCo's assets (including the pickle processing plant) are worth $750,000 on a going concern basis. (DillCo has $200,000 in cash that is not included in the $750,000 valuation; that $200,000 can used to pay administrative expense claims and the 10% cash payment on the general unsecured claims.) The court also has determined that $350,000 total would be available for payment of general unsecured claims in a chapter 7 liquidation. (Assume the $350,000 could be paid immediately in a liquidation, although in reality, of course, it would take some time to liquidate the assets.) 3. Assume all classes accept the plan. If TC, a trade creditor holding a claim in Class B, votes to reject the plan, how much must one share of stock in the reorganized DillCo be worth for the plan to be confirmed over TC's objection? (a) (b) (c) (d) 4. at least $750 at least $500 at least $350 at least $100

For purposes of determining whether to confirm the plan, what amount will the court find each share of stock in the reorganized DillCo to be worth? (a) (b) (c) (d) $100 $150 $250 $700

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5.

Assume Franky wishes to vote against the plan. Which of the following statements, if any, is correct? (a) (b) (c) (d) Class A is conclusively deemed to have accepted the plan because the plan gives Franky the payments to which Franky is entitled under nonbankruptcy law. Class A is conclusively deemed to have rejected the plan because Franky will not receive present value equal to 100% of Franky's allowed secured claim. Franky is entitled to determine whether Class A will accept or reject the plan by voting to accept or reject it. None of the above is correct.

6.

Assume the court determines, whether rightly or wrongly, that Franky is entitled to vote. Assume Franky votes to reject the plan. Of the following arguments, which would be the best argument for Franky's counsel to make at the confirmation hearing? (a) The plan discriminates unfairly against Class A because the plan gives Franky present value equal to a lower percentage of Franky's claim than it gives to the administrative expense claimants. The plan does not treat Class A fairly and equitably because it does not provide sufficient present value to Franky. The plan undercuts the provisions of section 1111(b) by eliminating the "due on" provision from the mortgage. The plan discriminates unfairly against Class A because the plan gives seven year notes to holders of unsecured claims in Class B but requires Franky to wait twenty years for full payment.

(b) (c) (d)

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7.

Assume Classes A and C accept the plan. Assume that Sid and seven trade creditors vote to accept the plan, and that the other five trade creditors (including REJ Co.) vote to reject the plan. Assume the seven trade creditors who vote to accept the plan hold claims totalling $350,000. Which of the following statements is correct? (a) (b) (c) (d) The acceptance by Class A satisfies the requirement of §1129(a)(10), which would not be satisfied if Class A had not accepted the plan. REJ Co. is entitled to the protection of the fair and equitable standard. The plan cannot be confirmed consensually because §1129(a)(8) is not satisfied. The acceptance by Class C would satisfy section 1129(a)(10) except that Sid is an insider; that is, if there were other shareholders, all of whom voted to accept the plan, and none of whom were insiders, the acceptance by Class C would satisfy section 1129(a)(10). * *

* 8.

*

DimCo's only factory is located on Greenacre, a parcel of real property which DimCo owns and on which MortCo has a $400,000 mortgage. DimCo filed a chapter 11 petition. Eighteen months later, MortCo sought relief from the stay in order to foreclose on the mortgage. Assume the value of Greenacre is not decreasing but that DimCo does not seem to have any realistic chance of reorganizing successfully. Which of the following facts, if true, would entitle MortCo to relief from the stay? (a) (b) (c) (d) DimCo's current management mismanaged DimCo's affairs during the year before the filing of the petition. Greenacre is worth $300,000. Greenacre is worth $500,000. Before filing the petition, DimCo defaulted on the mortgage by failing to make a monthly payment when it was due.

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THE FOLLOWING FACTS APPLY TO QUESTIONS 9 AND 10: Diplodocus, Inc., a company which owned land on which there were dinosaur fossils and which made money by charging admission to fossil hunters, filed a chapter 11 petition on January 15, 1994. Pterodactyl Bank held the first mortgage on the land (for $500,000), and Triceratops Savings & Loan held the second mortgage (for $200,000). The land is worth about $600,000, and its value is not declining. The debtor has defaulted on both mortgages. Assume there are no other liens on the land. 9. Consider the following statements: I. Pterodactyl Bank's secured claim will accrue interest during at least some of the time that the debtor is in chapter 11 (assuming no postpetition interest is actually paid to Pterodactyl Bank during the case). II. Triceratops Savings' secured claim will accrue interest during at least some of the time that the debtor is in chapter 11 (assuming no postpetition interest is actually paid to Triceratops Savings during the case). Which of those statements is (or are) correct? (a) I and II. (b) Neither I nor II. (c) II only. (d) I only. Assume postpetition interest is paid on neither secured claim, nothing else is done to provide adequate protection for either mortgagee, and there is a reasonable chance of the debtor successfully reorganizing. If both mortgagees bring motions for relief from the stay two months after the petition is filed, (a) (b) (c) (d) * 11. * neither motion will be granted. both motions will be granted. only Triceratops Savings' motion will be granted. only Pterodactyl Bank's motion will be granted. * *

10.

Consider whether the following entities, all located in the United States, are eligible to be debtors under chapter 11. I. Ipplesmock Insurance Company, Inc. II. Dewey, Cheatam & Howe, a law partnership. III. Home-Away-From-Home Savings & Loan Association. IV. Albatross Airlines Incorporated. Which of them are eligible? (a) I and IV. (b) II and IV. (c) II and III. (d) II, III, and IV.

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THE FOLLOWING FACTS APPLY TO QUESTIONS 12 AND 13: As shown on its balance sheet, DrearCo's assets consist of $100,000 cash; $400,000 of accounts receivable; $300,000 of inventory; and $4 million of property, plant, equipment, and goodwill. (The $4 million figure is a net figure; property, plant, equipment and goodwill are shown on the balance sheet at $5 million minus $1 million accrued depreciation and amortization, for a net figure of $4 million.) Also as shown on its balance sheet, DrearCo owes $250,000 to its trade creditors on 90 day credit terms, $150,000 to First Bank on a promissory note due in six months, and $3 million to Second Bank, all due and payable in three years. 12. The book value of stockholders' equity in DrearCo is: (a) (b) (c) (d) 13. $4.8 million (four million eight hundred thousand). $400,000 (four hundred thousand). $3.4 million (three million four hundred thousand). $1.4 million (one million four hundred thousand).

DrearCo's current ratio (the ratio of current assets to current liabilities) is: (a) (b) (c) (d) 2 (2 to 1). 1.25 (5 to 4). 1.41 (4.8 to 3.4). 1/2 (1 to 2). * *

* 14.

*

MaxCo is incorporated under the laws of Delaware and has its principal place of business and principal assets in New Jersey. MaxCo has no assets in California and does no business in California, but MaxCo does own all the stock of MinCo, which is incorporated under the laws of California and has its principal place of business in the Central District of California. Both MaxCo and MinCo are in financial distress, and both will be filing bankruptcy petitions in the next three weeks. In particular, MaxCo wishes to file a bankruptcy petition in the Bankruptcy Court for the Central District of California within the next three weeks. Which of the following steps which could be taken by MaxCo and/or MinCo would be helpful in making a chapter 11 filing proper for MaxCo in the Central District of California? (a) (b) (c) (d) Reincorporate MaxCo as a California corporation. Move MaxCo's principal place of business to the Central District of California. File MinCo's petition first in the Central District of California. Move MaxCo's principal assets to the Central District of California.

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15.

DanCo, a chapter 11 debtor, plans to issue promissory notes as part of its plan of reorganization. The promissory notes will be the only debt owed by the reorganized DanCo and will carry an interest rate of 12% per year, which you should assume is the fair market interest rate for the notes. The reorganized DanCo will pay 30% of its net income in taxes. What will be the reorganized DanCo's cost of debt? (a) (b) (c) (d) 12.0% 6.2% 8.4% 3.6%

16.

The reorganized Dapper Corporation will have $1,000,000 in assets and will owe $600,000 in debts. The reorganized Dapper Corporation's cost of debt will be 5%, and its cost of equity will be 15%. What will be the reorganized Dapper Corporation's cost of capital? (a) (b) (c) (d) 9% 10% 11% 12%

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THE FOLLOWING FACTS APPLY TO QUESTIONS 17 THROUGH 19: Debco, a manufacturing company, filed a chapter 11 petition in bankruptcy on Jan. 13, 1994. Debby owned 75% of Debco's stock, was the chairman of the board, and was the chief executive officer of Debco. Debby's college friend Al was a bankruptcy lawyer, so she had asked him on January 10, 1994 to represent Debco in the proceeding. Al immediately plunged into the case. Debco promptly sought approval of the retention of Al as its attorney. Debco filed a lengthy schedule of claims which showed that Debco owed money to Al; six months earlier he had handled a collections matter for Debco as a favor to Debby, and, again as a favor to Debby, he had delayed billing Debco, so Debco had not yet paid him. 17. Is Al eligible to serve as Debco's attorney in the chapter 11 case? (a) (b) (c) (d) Yes, if the amount of the debt for the collection work was not large enough to make Al one of Debco's seven largest creditors. No, because Debco owed him a debt for the collections work. Yes, because he had not yet billed Debco for the collections work. No, because Al did not obtain court approval of his retention as Debco's attorney before Debco filed its chapter 11 petition.

18.

Consider the following steps Al might have taken. I. II. III. Disclose in the application for retention the debt owed him for the collection work. Waive the claim for fees for the collection work. Agree to represent Debby in the chapter 11 case as well as Debco.

Which of those steps should Al have taken if he wanted to be as sure as possible that he would be in compliance with the law and would not be denied fees for work done for Debco in the chapter 11 case? (a) (b) (c) (d) I, II, and III. I and III, but not II. I and II, but not III. II, but neither I nor III.

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ADDITIONAL FACTS FOR QUESTION 19: Debby's mother Mildred is a wealthy entrepreneur who occasionally advises Debby on how to manage Debco. In 1992 Mildred guaranteed Debco's $20,000 unsecured debt to CrudCo. When DebCo and Mildred failed to pay the debt, CrudCo sued DebCo and Mildred in state court. On December 15, 1993, CrudCo obtained a judgment against both DebCo and Mildred. CrudCo had not obtained a judicial lien as of the time DebCo filed its chapter 11 petition on January 13, 1994. On January 20, 1994, CrudCo told Mildred that if she did not pay the judgment it would garnish her bank account. On February 1, 1994, Debby asked Mildred if she (Mildred) would be willing to contribute funds to help DebCo reorganize, but Mildred refused to do so. Nevertheless, on February 10, 1994, DebCo asked the bankruptcy court to enjoin CrudCo from garnishing Mildred's bank account. 19. Which of the following statements, if any, is correct? (a) (b) (c) (d) * 20. * CrudCo probably violated the automatic stay by threatening Mildred. The court will probably refuse to enjoin CrudCo's threatened garnishment under section 105(a). The court will probably enjoin CrudCo's threatened garnishment under section 105(a). None of the above. * *

The filing of a petition in bankruptcy by a corporation may normally be authorized by: (a) (b) (c) (d) the chairman of the board of directors. the president (or chief executive officer) of the corporation. the board of directors acting as a body. any of the above.

21.

Daedelus, Inc., an engineering firm that is in chapter 11, has proposed a plan under which TC, a trade creditor holding a $100,000 general unsecured claim, would receive 20% of the amount of its claim one year after the effective date of the plan, another 20% at the end of two years, and finally another 20% at the end of three years. If the appropriate discount rate is 10%, what is the total present value (as of the effective date) of the payments to be made to TC under the proposed plan? Round your answer off to the nearest $1,000. (a) (b) (c) (d) $45,000 $50,000 $55,000 $60,000

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THE FOLLOWING FACTS APPLY TO QUESTIONS 22 THROUGH 24: DandyPipe, Inc., was a plumbing supply company. It sold pipe, fittings, tools, and other plumbing supplies to various plumbing companies, usually on 60 day credit. On 1/2/95 Fast Finance Co. lent DandyPipe $300,000 and took and perfected a security interest in DandyPipe's accounts receivable and inventory, including after-arising accounts and after-acquired inventory. DandyPipe still owed Fast Finance $300,000 when DandyPipe filed a Chapter 11 petition on 4/1/96. At that time DandyPipe had $250,000 in accounts receivable (of which DandyPipe very reasonably estimated $225,000 was collectable) and $90,000 in inventory (based on what DandyPipe paid for the inventory). DandyPipe wishes to use the proceeds of cash sales of inventory and the receipts from collection of accounts receivable to buy more inventory and to pay post-petition wages of non-management employees. Fast Finance steadfastly refuses to agree to any use of the proceeds and receipts. DandyPipe has not yet purchased any inventory since filing the petition. Assume no avoiding power issues will be raised. 22. Which of the following statements is correct? (a) DandyPipe is entitled to use the proceeds of post-petition cash sales and the receipts from post-petition collection of accounts receivable because Fast Finance's security interest will not extend to those proceeds and receipts. DandyPipe may not use the proceeds of cash sales and the receipts from collection of accounts receivable without court authorization. Bankruptcy courts very seldom permit debtors to use cash collateral unless the secured party consents. The Bankruptcy Code precludes the court from permitting DandyPipe to use the proceeds of cash sales and the receipts from collection of accounts receivable unless the inventory is worth at least $75,000 on a liquidation basis.

(b) (c) (d)

23.

The most important reason why the existence or non-existence of an "equity cushion" may be important on the issue of whether DandyPipe can use the proceeds is that: (a) (b) (c) (d) the Supreme Court decision in Timbers shows that a secured creditor who does not have an equity cushion does not have adequate protection. the lack of an equity cushion shows that a reorganization is not likely to succeed. the ordinary course sale of existing inventory will likely be for less than what DandyPipe paid for it. the use of the proceeds and receipts may result in a diminution of the value of the secured creditor's collateral.

24.

Assume the court values the accounts at $225,000 and the inventory at $90,000. If the court permits DandyPipe to use the proceeds and receipts as DandyPipe requested, the court should require that: (a) (b) (c) Fast Finance be given an administrative priority in the amount of any proceeds and receipts used by DandyPipe. DandyPipe give Fast Finance a lien on any and all unencumbered property DandyPipe may have to secure the $300,000 claim. DandyPipe grant a security interest in post-petition inventory and accounts to Fast Finance and make sure that the combined value of all accounts receivable and inventory does not drop below $315,000. all of (a), (b), and (c) be done.

(d)

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THE FOLLOWING FACTS APPLY TO QUESTIONS 25 THROUGH 28: Devco was a corporation formed to develop a new shopping center. Bank provided the construction financing (at a 9% annual interest rate) and took a first mortgage on the property. (That mortgage is the only lien on the property). After the center was substantially built, Devco was unable to find any tenants for it; while the center was under construction the local economy had taken a serious downturn. Devco was therefore unable to make the payments on the construction loan, and Bank began foreclosure proceedings. The day before the scheduled foreclosure sale, Devco filed a petition in bankruptcy, at a time when the balance of the mortgage debt was $1 million. Several months later, Bank sought relief from the automatic stay so it could foreclose. (At that time the fair market rate on real estate mortgages was 12% per year.) Meanwhile Devco had found tenants to lease several of the store locations in the center when it opens and had leads on several other possible tenants. The local economy and the local real estate market, though still depressed, had recovered somewhat and apparently were continuing to improve slightly each month. After taking evidence on the motion for relief from the stay, the court is considering the following possible findings of fact: I. II. III. IV. V. The value of the shopping center is $450,000. The value of the shopping center is $1,300,000. The shopping center's value is remaining steady, and will remain steady for the foreseeable future. The shopping center's value is appreciating at a rate of $5,000 per month. Even though the real estate market is appreciating slightly now, there is a substantial possibility that there will be a further serious downturn (a 10% drop in values) which could occur without warning. Although it is not certain that Devco will be able to obtain confirmation of a plan within the next few months, there is a good chance Devco will be able to do so. The main reason Devco has been unable to attract more tenants is that the local economy is still depressed. The Defense Department is considering building a new Research Facility near the center; if that happens the local economy will boom and Devco will have no problem renting out all the store premises in the center. Otherwise it is very unlikely that Devco will be able to confirm a plan of reorganization. The Defense Department will decide on the site in 30 months. Ten other areas are also being considered for the site.

VI. VII.

25.

If Bank seeks relief from the automatic stay for alleged lack of adequate protection, Bank will most likely be entitled to relief if the court makes findings: (a) (b) (c) (d) I and III. II and V. I and V. II, V, and VII.

26.

If Bank seeks relief from the automatic stay under section 362(d)(2), Bank will most likely be entitled to relief if the court makes findings: (a) (b) (c) (d) I, IV, and VII. II, IV, and VII. I, V, and VI. II, V, and VI.

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27.

Which of the following facts, if true, would preclude Bank's motion from succeeding under section 362(d)(3), if Bank relied on that provision? (a) Bank, which was undersecured, filed its motion ninety five days after Devco's petition was filed, which was six days after Devco began paying Bank interest at a 9% annual rate on the value of the shopping center. Bank was oversecured. Devco filed a proposed plan of reorganization eighty-eight days after filing its chapter 11 petition. The day the court decided Bank's motion was the seventieth day after Devco filed its chapter 11 petition.

(b) (c) (d)

28.

Assume the shopping center is worth $600,000. Which of the following statements is correct? (a) If Bank does not make the section 1111(b)(2) election, then in a cramdown Bank will be entitled on account of its secured claim to receive payments with a present value of $600,000 and will have an unsecured claim for $400,000. If Bank makes the section 1111(b)(2) election, then in a cramdown Bank will be entitled to receive payments with a present value of $1,000,000 but will not have an unsecured claim. Bank will be entitled to add its reasonable attorneys' fees to its secured claim if its mortgage provides that Devco must pay Bank's attorneys' fees. Bank's secured claim will accrue interest during the reorganization. * *

(b)

(c) (d) * *

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29.

Consider the following statements as applied to a large company in chapter 11. I. Once a plan proponent has filed a disclosure statement, he generally may solicit votes pending court approval of the disclosure statement, but the votes may not be used unless the court approves the disclosure statement. After the court approves a disclosure statement filed by a plan proponent, one who wishes to solicit votes against a plan must first obtain court approval of her own disclosure statement. The mailing of an unfiled draft plan to a creditor with a request for comments and suggestions will generally not be considered solicitation of a vote.

II.

III.

Which of those statements is (or are) correct? (a) (b) (c) (d) 30. II and III, but not I. I and III, but not II. II only. III only.

Five different companies, including S, sold equal amounts of inventory to debtor on credit in ordinary course transactions after debtor filed its chapter 11 petition. Debtor has not paid the five companies even though payment is due under the terms of the sales. Debtor's plan places the resulting claims of the five companies in one class; under the plan each claim in that class will be paid in full with interest by means of twenty-four equal monthly payments beginning one month after the effective date of the plan. All of the five companies except S agreed to the plan. Which of the following statements is incorrect? (a) (b) S is bound by the votes of the other four companies, and thus S must accept payment over twenty-four months. Despite the acceptances by the other four companies, S is entitled to be paid in full in cash on the effective date, and the court should protect that right of S, at least if S objects to confirmation of the plan. The other four companies may be paid over twenty-four months. The Bankruptcy Code did not require that any of the five claims be placed into a class.

(c) (d)

END OF MULTIPLE CHOICE PORTION

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