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Chapter 11 Debtor’s Reporting Requirements

Reporting Requirements Make the Debtor More Transparent

One of the  central principles of bankruptcy is that a debtor should have the benefit of a “fresh start.” However, to accord such relief, the Bankruptcy Code, Bankruptcy Rules, and case law require transparency from the debtor and other parties in interest. As such, strict compliance with reporting requirements is a primary responsibility of a debtor in possession (“DIP”).[i]

Courts expect a DIP to keep proper records and file required disclosures and reports in a timely manner. A DIP’s failure to do so may result in: (a) the removal of the DIP and the appointment of a case trustee[ii]; (b) the granting of creditor relief (e.g., relief from the automatic stay)[iii]; (c) conversion of the chapter 11 case to a chapter 7 case[iv]; or (d) case dismissal[v].

Three general points:

  • in addition to the statutory reporting requirements outlined below, courts have the power to order additional or modified disclosure;
  • non-bankruptcy reporting requirements are not addressed in this article and may mandate additional reporting (e.g., SEC filings) during the bankruptcy case; and
  • many jurisdictions have local rules that add to or modify the reporting requirements and dictate the appropriate format of submissions.[vi]

[Editor’s Note: For more information on the Bankruptcy Code, please see Dealing With Distress For Fun & Profit – Installment #3 – The Bankruptcy Code.]

Reporting Requirements At the Start of the Case

Upon filing a chapter 11 petition (the “Petition Date”), or within 14 days thereafter (unless ordered otherwise), the DIP must file, among other things:

  1. a list of all creditors of the DIP;
  2. a schedule of the DIP’s assets and liabilities;
  3. a schedule of the DIP’s current income and expenditures;
  4. a detailed statement of the DIP’s financial affairs;
  5. copies of all payment invoices or other evidence of payment received by the DIP within the 60 days preceding the Petition Date;
  6. an itemized statement of the amount of the DIP’s monthly net income;
  7. a statement disclosing any reasonably anticipated increase in income or expenditures over the 12-month period following the Petition Date;
  8. a schedule of executory contracts and unexpired leases to which the DIP is a party; and
  9. if a corporation, a corporate ownership statement.[vii]

 

The purpose of these filings is to give all interested parties a clear sense of the DIP’s financial situation at the outset of the bankruptcy case.

[Editor’s Note: For more information on reporting requirements at the outset of a case, please see Opening the Kimono: Operational and Financial Reporting Obligations at the Outset of a Chapter 11 Case.]

Reporting Requirements During the Case

After the Petition Date, ongoing disclosures are necessary to enhance transparency of the DIP’s actions and reorganization progress. A DIP that continues to operate during the case must file periodic reports and summaries of its business operations, including statements of receipts and disbursements, balance sheets, cash-flow statements, plus schedules of accounts receivable, tangible assets (like inventory), and post-petition debts.[viii] Additionally, the DIP must report information related to any employee tax withholdings (i.e., the source of the tax withholding [city, state, federal], the withheld amount, and the location of those funds).[ix]

[Editor’s Note: For more information on what happens during a bankruptcy case, please see Dealing With Distress For Fun & Profit – Installment #6 – The Mundane Middle of A Bankruptcy Case.]

The Office of the United States Trustee requires the DIP to file operating reports on a monthly basis through the effective date of a confirmed plan of reorganization or liquidation, or until conversion or dismissal of the bankruptcy case. Additionally, the DIP must file, on or before the last day of the month after each calendar quarter, a report calculating the statutorily-required fee to be paid to the United States Trustee.

Section 1106(a)(1) of the Bankruptcy Code incorporates in chapter 11 cases a number of the duties set out in section 704(a) of the Bankruptcy Code (which apply to cases under other chapters) and lays out more reporting requirements. Section 1106(a)(1) requires a DIP to furnish information concerning the estate and the estate’s administration to a requesting party in interest. A DIP may request a court place reasonable restrictions on requests for information by parties in interest.

Parties in interest, however, may also acquire information from the DIP by deposition of employees, officers, directors, or owners of the DIP – or even of their accountants and bankers – and document discovery from such parties under Federal Rule of Bankruptcy Procedure 2004, by means of what practitioners often call a “Rule 2004 Examination.” A Rule 2004 Examination is a powerful tool that creditors and other parties in interest may use to enforce or enhance a DIP’s reporting duties, and can presage efforts to remove a DIP and cause the appointment of a case trustee to secure creditor relief (e.g., relief from the automatic stay), or to convert or dismiss a chapter 11 case.

Section 1106(a)(1) of the Bankruptcy Code (also via incorporation of section 704(a) duties) requires a DIP to make a final report and file a final account of the administration of the estate with the court and the United States Trustee. The final report and account together comprise a comprehensive filing that summarizes the administration of the estate.  It also includes itemized statements of property received and disposed of, and the details surrounding important events (e.g., sale price, purchaser, etc. with respect to sales of assets). As the name suggests, the final report is filed at the conclusion of the case.

The reporting requirements during a bankruptcy case may seem onerous. However, these reporting requirements are necessary to make the process more transparent for all parties involved.

[Editor’s Note: This is an update of an article that was originally published in September 2013.]


[i] Upon filing a chapter 11 petition, a debtor becomes a DIP. Occasionally, a DIP is replaced by a chapter 11 trustee (not to be confused with the United States Trustee who monitors the administration of chapter 11 cases), but for the purposes of this entry, we assume a DIP remains in control of its assets while undergoing the chapter 11 reorganization.
[ii] See Tradex Corp. v. Morse, 339 B.R. 823, 833 (D. Mass. 2006).
[iii] See IRS v. Bacha, 166 B.R. 611, 612 (Bankr. D. Md. 1993).
[iv] See In re Tucker, 411 B.R. 530, 535 (Bankr. S.D. Ga. 2009).
[v] See In re Famisaran, 224 B.R. 886, 898 (Bankr. N.D. Ill. 1998).
[vi] For example, some jurisdictions require that a DIP file continued proof of insurance or monthly bank statements with the office of the United States Trustee.
[vii] See section 1106(a)(2) of the Bankruptcy Code, which refers to section 521(a)(1) of the Bankruptcy Code. There are additional requirements if the debtor is an individual whose debts are mostly consumer debt, per section 342(b) of the Bankruptcy Code.
[viii] See Fed. R. Bankr. P. 2015(a) which, among other things, incorporates the requirements of section 704(a)(8) of the Bankruptcy Code. If the debtor has a substantial or controlling interest in any non-debtor entities, periodic reports regarding the value, operation and profitability of these entities are required.
[ix] Fed. R. Bankr. P. 2015(a)(6) establishes special monthly reporting requirements, as required by section 308 of the Bankruptcy Code, for small business cases.

About Richard E. Mikels

Rick is Chair of the firm’s Bankruptcy, Restructuring & Commercial Law Practice. With over 35 years of experience in commercial law, workouts, and reorganizations, he maintains a national practice, focusing on insolvency issues, business restructurings, and mediations. Rick serves as an adjunct professor of law at Boston University School of Law. He is recognized for…

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Richard E. Mikels

About Eric Blythe

Eric is an associate in Mintz Levin’s Bankruptcy, Restructuring & Commercial Law Group.  Eric’s practice focuses primarily on commercial law and corporatere organization through representation of debtors, creditors, bond trustees and bond insurers.  Prior to joining the firm, Eric served as legal counsel at the Massachusetts State House.  While there, he worked on issues such…

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Eric Blythe
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