Chapter 11 Disclosure Statements: Adequacy of Disclosure

CHAPTER 11 DISCLOSURE STATEMENTS:  ADEQUACY OF DISCLOSURE

Before a debtor’s plan can be approved in a Chapter 11 bankruptcy case, the debtor must submit a disclosure statement for approval. A disclosure statement may be approved as adequate only if it contains information sufficient to allow a “reasonable investor typical of holders of claims or interests of the relevant class to make an informed judgment about the plan.” 11 U.S.C. § 1125(a). In drafting the disclosure statement, the below information is typically deemed important for adequate disclosure:

  1. The necessary financial information, data and projections relevant to the creditors’ decision to accept or reject the Chapter 11 plan.
  1. The assets and liabilities of the business and basis for values.
  2. The events leading to the filing of the petition and the financial difficulties of the debtor.
  3. The operating condition and performance of the debtor while in Chapter 11.
  4. An estimate of the return to creditors under Chapter 7 liquidation (liquidation analysis).
  5. A list of all claims against the debtor, if practicable, showing the claims to which objections are anticipated and the reasons for the objections.
  1. A statement regarding the debtor’s compliance with all responsibilities to file tax returns and pay taxes due both pre and post-petition.
  1. An analysis of the potential tax consequences to the debtor and other parties-in-interest resulting from the implementation of the plan.
  1. The parties responsible for the future management of the debtor and the rate or amount of compensation to be paid for their services.
  2. A detailed estimate of the administrative expenses contemplated under the plan, including, but not limited to, attorneys’ fees, accountants’ fees and other professional fees and expenses. This includes quarterly fees to the United States Trustee Office.
  3. The estimated collectability of the debtor’s accounts receivable.
  4. The risks posed to creditors under the plan.
  5. An analysis of potential preferential or otherwise voidable transfers and the debtor’s plan, if any, to pursue such recoveries.
  6. Anticipated future litigation (bankruptcy and non-bankruptcy forums) and the estimated cost and source of revenue to fund this litigation.
  7. A statement that the plan represents a legally binding arrangement and should be read in its entirety, as opposed to relying on the summary in the disclosure statement.
  8. The designation of impaired classes under the plan.
  9. A statement that approval of the disclosure statement by the Bankruptcy Court does not constitute approval of the plan.
  10. An explanation of the voting requirements for acceptance of the plan.

 


By: Jamie L. Harris, Esq.

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