If you are an accountant today, you will more likely than not have a corporate client at some point that is in a Chapter 11 bankruptcy proceeding. The role of an accountant in Chapter 11 proceedings is vital. It is important to know that as an accountant you are a professional that needs court approval for both your retention in the case and approval of payment of your fees.
You will need to disclose in your retention application whether your fees are hourly or at a flat rate. Failure to be properly retained or to seek court approval of fees can result in disgorgement of payments. You will need to run a conflict check against all the creditors and parties in the bankruptcy case. This is necessary to disclose any connections since you are supposed to be a disinterested individual. Requesting a copy of the creditor matrix from debtor’s counsel will enable you to check for any conflicts or necessary disclosures.
Obligations of the Debtor
As you are assisting the debtor in possession in the case, it is important for you to understand the obligations the debtor has in the case. The court in all Chapter 11 proceedings will enter an operating order that details various obligations of the debtor. This includes the requirement to open new books and records as well as new debtor-in-possession bank accounts. Any variance from the operating order required court approval. For example, a debtor may request court permission to allow pre-petition bank accounts to remain open. Another primary requirement under the operating order is that the debtor file monthly operating reports. These reports demonstrate the financial condition of the debtor. Preparation of these reports is typically a primary function of the debtor’s accountant or bookkeeper. These reports are due monthly until the bankruptcy case is converted, dismissed or closed.
Importance of Deadlines
Understanding the deadlines in Chapter 11 cases is also critical for an accountant if you are assisting in preparation of Chapter 11 financial projections. In a small business case, the deadline to file a plan is 180 days from the petition date, while a regular debtor only has 120 days to file a plan. The Debtor can request an extension from the court to obtain more time to file its plan. Typically, a plan is accompanied by a separate disclosure statement or disclosures. These disclosures typically include five-year financial projections.
Once the plan is confirmed by the bankruptcy court, there is typically a deadline for professionals to file final fee applications. Failure to meet this deadline will likely result in loss of fees. Prior to the conclusion of the case, fee applications are done on an interim basis typically every 120 days. Debtor’s counsel usually prepares the fee applications for all professionals in the case including the accountant, so contact with debtor’s counsel during the case is critical as to the status of the case and the status of your retention and approval of your professional fees. Typically, debtor’s counsel will work closely with the accountant and other professional to manage the case.
About DelCotto Law Group
DelCotto Law Group is Kentucky’s asset protection law firm known for its commitment to the lifetime success of its clients. With offices located in Lexington, Louisville and Danville, DLG serves Kentuckians with complicated financial matters, especially in the areas of bankruptcy and complex litigation. For more information please call (859) 231-5800, email [email protected] or reach us on our contact page.