Transparency in the Bankruptcy Process

We tackle transparency in the bankruptcy process this week. Both creditors and debtors bemoan the increased transparency that comes from participating in the Chapter 11 process. Debtors often fear disclosure of financial information, business plans or cost cutting details that could put them at a competitive disadvantage and/or impact internal morale. Creditors, on the other hand, often fear disclosing their trading details could alert competitors to their strategy in the case. The ABI Commission noted in its Final Report that “none of [Chapter 11’s] required disclosures provide . . . parties in interest with financial data that could assist the parties in valuing the debtor’s business or assets.†What do you think? Would enhanced disclosures of business information (such as those required by the recently updated Monthly Operating Reports or SEC reporting during bankruptcy) provide much-needed information? Or, result in a chilling effect on Chapter 11 filings? Would requiring creditors to disclose their trading positions make it more difficult for creditors to participate in the process? Or, is transparency necessary for the legitimacy of the process? What’s your view? What other changes would you want to see?

Our Contributor Sid Levinson jumped right into one of the more controversial topics in bankruptcy: “the timely and complete disclosure of a party in interest’s ‘agenda.’†“What is the purpose of th[is] requested disclosure? And is that purpose legitimate?†asked Contributor Jim Millar. He concludes that “negotiation should [not] be cabined by what the creditor’s adversary thinks is an appropriate return on an investment.†We couldn’t have said it better.

Guest Contributor Vladimir Jelisavcic of Cherokee Acquisition weighs in on transparency in the bankruptcy process with a special emphasis on the plight of trade creditors.

Contributor Judge Schmidt, the former Chief Judge of the Southern District of Texas, again brings us back to basics: “You lose your financial right to privacy when you file for bankruptcy. It’s an open kimono. …debtors have to disclose all financial information. Same for creditors. Disclose everything that is relevant.†Well said, your Honor.