Recent MFA Comment Letter to U.S. Trustee Urges Improvement to Financial Disclosure in Bankruptcy Cases
The Managed Funds Association recently submitted a letter to the U.S. Trustee Program (USTP) offering disclosure solutions that would provide more transparency for investors in the Chapter 11 Bankruptcy process. MFA suggested that the USTP “consider promulgating rules…requiring debtors in possession, and trustees, to file periodic reports on uniform forms in Chapter 11 cases under the Bankruptcy Code.” MFA believes that the public would benefit from improved financial disclosure in these cases.
Disclosure of reliable financial information is the cornerstone of the modern Bankruptcy Code. As held by bankruptcy courts, “Timely and accurate financial disclosure is the life blood of the Chapter 11 process. Monthly operating reports…are the means by which creditors can monitor a debtor’s post-petition operations.”
While the Bankruptcy Code does establish a disclosure framework, additional rulemaking is needed to carry out the objectives of the Code, and ensure that investors are provided essential transparency and are confident in how their investments may be treated in difficult circumstances.
MFA suggested enhancements to financial reporting regarding:
- Standardization and uniformity in the forms filed by Chapter 11 debtors.
- The U.S. Trustee Program should use securities law as a source for guidance in creating the new rules.
- A presumption in favor of continued reporting by the debtor to the Securities and Exchange Commission.
- Consolidating information that each debtor-entity needs to individually report, rather than consolidated disclosure reports.
- Create a way to hold debtors accountable and periodically review their reporting obligations.
Learn more about this issue in MFA’s Comment Letter Database.