Category Archives: Documentation Needed
Fear of the unknown. The Ch. 11 process is unknown to many. C-level executives
dread discussions about bankruptcy options. We just recently filed a new Chapter 11 case and thought we would write a series of posts on basic Ch. 11 procedural matters so as to demystify the process.
Filing Chapter 11 (reorganization/restructuring) is a powerful tool that can be invoked by businesses and certain individuals pursuant to Title 11 of the United States Code (aka the “Bankruptcy Code”). As a practitioner, I am privileged to be able to facilitate such restructurings. Here is the first post in this series on Ch. 11 basics.
The administrative burden of filing a case can be heavy. Often, a paralegal is running the “paper pushing” ship just before and shortly after a case is filed. Information gathering. Data compilation. Report generation. A debtor’s bookkeeper, accountant and/or CFO all work with Debtor’s counsel and paralegal staff to gather necessary documentation and to fulfill requirements imposed by the Court and the United States Trustee (appointed by Department of Justice). Each office has very specific document requests, rules and procedures.
In furtherance of a U.S. Trustee’s monitoring responsibilities, here is a list of what the U.S. Trustee wants prior to the Initial Debtor Interview. Most of the documentation requested is straightforward and anticipated:
- Bank account statements.
- Latest filed Federal Tax Returns or copy of extension to file.
- Financial statements.
- Payroll detail.
- Rent roll.
- Accounts receivable detail.
- Recently filed sales tax
- Recently filed payroll returns.
- Detail of intercompany transactions.
- Accounts payable detail.
- Check register for last 60 days.
- Filed Scheduled and Petition
Other requirements are not as obvious. Two that specifically need explanation are:
- Proof of establishment of Debtor-In-Possession account(s)
- Proof of insurance indicating that the Office of the U.S. Trustee is an additional certificate holder.
Once a debtor has filed a bankruptcy petition, it must close existing bank accounts and open new accounts which identify the debtor as a debtor in possession (“DIP”). All money from the bankruptcy “estate” (i.e. anything the debtor owns) must be put into these accounts. The title of “Debtor in Possession” must be printed on the checks along with the bankruptcy case number. The Bank will not issue a debit card for a DIP account.
While this seems complicated at first, the good news is that this is standard procedure. So, any bank should be familiar with this request. However, a debtor cannot go to just “any” bank. The U.S. Trustee’s Office will only accept DIP accounts from approved depositories. A current list of such institutions is available through the U. S. Bankruptcy Court in the district where the bankruptcy was filed. Approved Banks DIP
Within 15 days of receipt from the bank, a debtor must serve copies of monthly bank statements upon all creditors and interested parties, together with a monthly operating report (MOR) of gross receipts and disbursements. Both the monthly operating report (MOR) and DIP bank statements are publicly filed on a debtor’s docket.
Proof of Insurance
A debtor must maintain all insurance coverage during the bankruptcy process. This includes: general comprehensive liability; property loss from fire, theft or water; vehicle; workers’ compensation; and any other coverage that would be customary in line with the debtor’s business.
In addition to maintenance, a debtor must list the Office of the U.S. Trustee listed as an additional certificate holder and provide proof of such. The documentation of proof must include the type and extent of coverage, effective dates, and insurance carrier information. In order to fulfill the Trustee’s requirements, the debtor will usually have to provide proof of the request. The proof of insurance and additional certificate holder requirement is standard, so the insurance company should not have any trouble fulfilling a debtor’s request.
Please TAKE NOTE that a debtor’s failure to comply could result in DISMISSAL of the case or conversion to a Chapter 7.
This post does not constitute legal advice. Consult an attorney about your specific case.