What to Know About Chapter 11 Disclosure Statements

In Chapter 11 bankruptcy, the disclosure statement is a critical document required to be completed and filed by debtors. Its purpose is to provide sufficient information for creditors to make an informed judgment about the debtor’s proposed reorganization plan. Essentially, the disclosure statement ensures transparency, giving creditors enough insight to decide whether to support or object to the reorganization plan.

The primary purpose of the disclosure statement is to protect creditors’ rights by providing them with comprehensive information about the debtor’s financial situation, the terms of the proposed reorganization, and the potential impacts of the plan on their claims. Under Chapter 11, creditors have a legal right to object to a reorganization plan if they believe it is unfair, unreasonable, or not in their best interests. Therefore, the disclosure statement plays an essential role in leveling the playing field between the debtor and creditors by equipping creditors with the necessary details to evaluate the proposal effectively.

The Bankruptcy Code requires that a Chapter 11 disclosure statement contain “adequate information.” Generally, this includes the following:

1. Description of the debtor’s business — Background on the debtor’s business operations, history and market position helps creditors to understand how the business arrived at its current state and the factors that contributed to its bankruptcy filing.
2. Summary of the reorganization plan — The statement must outline the proposed plan in detail, including projected repayment schedules, sources of revenue for future payments and any intended business strategies or operational changes.
3. Asset and liability breakdown — This can include inventory, real estate, intellectual property, accounts receivable and any other significant holdings. Liabilities should be presented in a way that distinguishes between secured and unsecured creditors and prioritizes each group’s claims.
4. Claims and classes of creditors — The statement should clarify which creditors belong to each class under the proposed plan and how each class is expected to be treated. Creditors in different classes have varying rights and claim priorities.
5. Projected financials — Creditors need to evaluate the post-organization prospects to decide whether the debtor’s future financial outlook supports the feasibility of the proposed plan.
6. Risk factors — The statement should identify potential risks to the success of the reorganization, including market risks, legal challenges or operational uncertainties, so that creditors can make a realistic assessment of the viability of the proposed plan.

An experienced Chapter 11 attorney can prepare and file the disclosure statement, working closely with the debtor to compile all necessary data. An attorney also plays a key role in anticipating creditor objections by ensuring that the statement is thorough, transparent and defensible in order to smooth the path toward plan confirmation.

The Law Offices of Michael Jay Berger in Beverly Hills is one of Southern California’s most experienced Chapter 11 bankruptcy law firms, with 12 locations across the region. If your company needs help with debt reorganization, contact us online or call 310-271-6223 to schedule a consultation.