Reporting Requirements in Bankruptcy

Bankruptcy processes tend to be very detailed and complicated. Companies that file for bankruptcy are expected to disclose their financials in a very detailed manner. Failure to do so can have serious legal consequences for the debtor.

However, even if legal consequences are not taken into consideration, the debtor would still be better off disclosing all the details about their finances. This is because Chapter 11 bankruptcy is all about a company putting its financial house in order.

If the company fails to mention all the bills, it is like a company failing to kill some of the pests during a pest control exercise. It is true that most of the pests would have been killed. However, it is also true that the remaining pests will repopulate the room, and within no time, the situation would be as bad as before, if not worse.

It is for this reason that the bankruptcy law provides explicit details about the various types of assets and liabilities which need to be disclosed. The government has created separate schedules in order to facilitate full disclosure of the details.

Schedules to be Filled While Filing Bankruptcy:

The following schedules have to be filled in while filing for bankruptcy protection in the United States:

Schedule A and Schedule B

Schedule A and Schedule B refer to the real and personal property that a company holds. Real property includes real estate like land, buildings, factories, plants, etc. Any company filing for bankruptcy is supposed to provide a list of all the properties which they own to the government. This list must mention the market value of all the properties that they own.

These values are often derived based on the opinion of professional valuers. Also, the company is supposed to list any mortgages, liens, or other claims that these properties are subject to.

Basically, the idea is to find out how much equity the company owns in these properties. Companies also need to state whether the titles to these properties are clear. This means that they need to state whether the property is owned alone by the firm or jointly with another party, which may or may not be a party to the bankruptcy.

Under schedule B, the company is supposed to disclose the value of all its tangible as well as intangible assets. This could mean that the values of brands, patents, software, and such other things need to be determined and stated to the bankruptcy court.

If a company owns shares or debentures of another company, that information also needs to be stated in this schedule. Even small assets like furniture and fixtures need to be disclosed under this list. For a multinational company, this list can become very long and run into several pages.

The government has mentioned over 33 different categories of assets. The debtor has to declare whether or not they have those assets. This has been done in order to ensure that the debtor does not accidentally miss out on declaring any assets.

Schedule C

Not all assets owned by the company are seized and sold immediately in order to pay back the dues. Some assets can be claimed as exempt if they are listed under Schedule C.

If any company fails to declare an asset under Schedule C, then it can be seized and sold by the bankruptcy court. It is therefore very important to enlist the services of an attorney while filling section C. If an error is made here, it can have disastrous consequences.

Schedule D

Schedule D provides a list of all creditors who have a secured claim on the property of the company. The value of the claim, as well as the value of the underlying asset, has to be mentioned in detail in this schedule. Also, the different priorities of the creditors have to be explained to the court using this schedule.

Schedule E and Schedule F

Schedule E and Schedule F provide a list of unsecured creditors. Priority unsecured creditors are mentioned under Schedule E, whereas non-priority unsecured creditors are mentioned under Schedule F. If the company is ever liquidated, schedule E creditors are paid earlier as compared to Schedule F creditors.

Schedule G

Schedule G provides a list of all the executor contracts. Employment agreements and leases are common examples of executory contracts. In such contracts, neither party has performed material parts of their obligations. Hence, these contracts can be made void by paying a small compensation in case the court decides to do so.

Schedule H

Schedule H provides a list of all co-debtors to the bankruptcy court. This list includes all co-signers, guarantors to the loan, etc. The extent of their exposure to the bankrupt company is also listed in this schedule.

Schedule I & J

Schedule J provides a list of the monthly recurring incomes and expenses of the company. This information is required by the bankruptcy court to ensure that they provide enough liquidity to the firm so that it is able to stay in business.

The amount of paperwork that needs to be filled in while filing for bankruptcy protection can be overwhelming. The accuracy of this paperwork is also of utmost importance. This is the reason that the CFOs of companies are generally directly involved in the collation and communication of this information.

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