Monday, January 25, 2021

The prior chapter of Behind The Curtain can be found with the following link:

MORE FROM FORBESBehind The Curtain-Chapter 11 From The Inside-Chapter 11-The Plan (Part II)

Brettco has filed its Plan. While we are waiting for the creditors to vote, let’s go over some of the other aspects of the chapter 11 process. This chapter will look at monthly operating reports and proofs of claim.

The monthly operating report is something Brettco needs to file each month. Remember back in chapter 2 when Brett said one of the most surprising things about the process was the amount of paperwork he needed to submit? Other than the Schedules and SOFA, this is what he was talking about. The monthly operating report is filed at the end of each month, showing how the business did the prior month. Among the documents that need to be filed are the following: (1) schedule of cash receipts and disbursements; (2) bank reconciliation; (3) statement of operations; (4) balance sheet; (5) listing of unpaid post-petition debts; (6) listing of aged accounts receivable; (7) bank statements; and (8) answers to certain questions about activity from the prior month.

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Fortunately, Brett relies heavily on Larry, Brettco’s accountant. Larry and Brett work together to get the documents ready, then send them over. Brett knows that what will happen next is he will have to be ready to answer questions from Jeff regarding any unusual activity. This is because the monthly operating reports are filed with the Court and are reviewed by the Office of the US Trustee. It is better for Brett that any questions are answered before the MOR is filed, so Jeff can be ready to respond to any questions that might come from the US Trustee.

Then there is the proof of claim process. As was discussed in chapter 4, the Schedules include the name of all of Brettco’s creditors and the amount that Brettco thinks is owed to each of them. However, there may be a difference between what Brettco thinks is owed to a creditor and what the creditor thinks is owed. Fairly early on in the case, Brettco asks the Court to set a date by which all creditors have to file a document saying how much they think they are owed. The document is called a proof of claim and the date is called the bar date.

Once the Bar Date Order is entered, Brettco has to make sure that it serves a copy of the Order on all of the creditors. The Order includes the deadline for filing the proof of claim, as well as where it needs to be filed.

The Bar Date is important because it provides Brettco with the complete universe of what the claims may be. This is helpful when Brettco is preparing the plan. Just because a creditor files a proof of claim doesn’t mean that is the correct amount owed. If Brettco disagrees with the amount (or the classification) of the claim, it can file an objection. Most of the objections are filed after the plan is confirmed (filing them before confirmation would likely result in the creditor voting against the plan).

One of the other things that happens when a creditor files a proof of claim is the creditor does what is called “submitting to the jurisdiction of the court.” Jurisdiction comes in two flavors—subject matter and personal. Subject matter jurisdiction means that a court has the authority to hear the subject matter of the lawsuit. Personal jurisdiction means the Court has the authority over the person either suing or being sued. For example, a federal district court has subject matter jurisdiction over a case where there is a “federal question” (such as a United States statute) or there is “diversity” as between the parties (the parties are from different states. So, a federal court does not have the authority to hear a breach of contract case between two companies from the same state.

One of the last topics to discuss are lawsuits that might be filed by Brettco against some of the creditors. That will be discussed in the next chapter.

Earlier chapters of Behind The Curtain can be found at the following links:

MORE FROM FORBESBehind The Curtain-Chapter 11 From The Inside-Chapter 1 MORE FROM FORBESBehind The Curtain-Chapter 11 From The Inside-Chapter 2-The Initial Meeting MORE FROM FORBESBehind The Curtain-Chapter 11 From The Inside-Chapter 3-Prefiling Source

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