Thanks for following this series about why we ask for so much information from our clients, and what we do with it! We know our business clients are put off by how much information we ask for. We ask for it to help focus on what’s important and what’s not, and to help plan for the future success of a business. Here are some examples of what we need:
Businesses rely on various utilities to function, from mobile phones to water to internet service. We ask for information about utility deposits, monthly costs and cut off notices to determine if an asset exists, to help create a budget and avoid any interruption of utility service. A bankruptcy filing stops a utility cut-off, but utilities are entitled to an “adequate assurance” that they will be paid as a bankruptcy proceeds. Clients normally have to post another deposit for this purpose, creating budget and cash flow issues.
Bank account records provide a wealth of information about revenues and expenses. If a business owes money to the bank where accounts are held, the bank may have the right to freeze accounts, making it difficult or impossible to operate. If company and personal funds have been mixed together, or if company funds are used to pay personal expenses, the risk that claims will be made against individuals increases. Many payments are set up as automatic deductions or ACH payments, which may need to be stopped after a bankruptcy. Finally, a company which files a Chapter 11 bankruptcy is required to open a new “debtor-in-possession” bank account. Reviewing prior bank account records helps us advise on cash flow management for a business.
Lawsuits are often a factor driving a business into bankruptcy. Of course, we want to list any legal claims against a business so they can be resolved in the bankruptcy. We’ll file a notice of bankruptcy in any pending cases to stop the case from proceeding. A business often has claims against another party which could be raised in a lawsuit. These must be listed as an asset. Lawsuits may involve regulatory action, which may not be stopped by a bankruptcy. Lawsuits are often based on documents which may be necessary for preparing a bankruptcy, and it may be necessary to get bankruptcy court permission to hire attorneys representing the business. Finally, it is possible to transfer, or “remove,” lawsuits to the bankruptcy court, but making such a decision requires reviewing the status of any pending lawsuits.
We hope this series of posts has been helpful in understanding why so much information is requested, and what it is used for.