Small Business Reorganization Act Chapter 11 SBRA bankruptcy.
This is a Kentucky SBRA small business bankruptcy checklist of items that should be prepared or at least considered before you file an SBRA case. Immediately on the first day of an SBRA bankruptcy, the small business has to file several motions so the company can continue to operate as usual. There are several considerations in any SBRA case.
The First Day SBRA Motions and items
- Cash collateral motions allow the business to continue to operate. Essential employees will leave the company if they are not assured that they will continue to be paid. By filing a cash collateral motion, the business can continue to operate and pay small vendors, payroll, and operating expenses. You will often need to attach a budget to explain to the court, trustee, and creditors what these expenses will be. The budget needs to explain the need for these necessary expenses.
- The appointment and fees of professionals. If you need an accountant or attorney, the court will need to approve the appointment and fees of these critical professionals. Without the appointment and approval of their fees, they cant be paid and will leave or do substandard work.
- At the time of filing a corporate resolution adopting the bankruptcy filing must be filed with the schedules.
- Along with petition the bookeeping and tax returns have to be filed. Look at 11 U.S. Code § 1116. Documents include its most recent balance sheet, statement of operations, cash-flow statement, and Federal income tax return. You can substitute a statement made under penalty of perjury that no balance sheet, statement of operations, or cash-flow statement has been prepared and no Federal tax return has been filed. But the debtor has all the duties of 1116 sections 2, 3, 4, 5, 6, and 7.
The SBRA initial interview required accounting and documentation
- At the start of the case, the auditor for the US Trustee’s office will need the following documents for the initial interview. These documents are due two days before the interview. These documents should be in pdf or electronic formats.
- Bank account statements for the 12 months before a bankruptcy filing. Upon filing, the Debtor is required to close the old business checking accounts and to establish a new checking account with an approved bank. There is a list of these approved banks. The new checks are required to have in the heading “Debtor in Possession” to clearly note the business is engaged in a Chapter 11 bankruptcy. The Debtor will provide the trustee with a voided check from each Debtor in Possession checking account with “Debtor in Possession” and the case number on the check heading;
- Three (3) most recently filed federal income tax returns with all attachments;
- Declaration page(s) from each insurance policy maintained by the Debtor with the U.S. Trustee added as a certificate holder;
Yes, more accounting and documentation that is required for the initial SBRA interview.
- Most recent monthly Profit and Loss Statement (i) prepared by the Debtor, and (ii) externally prepared;
- Most recent Balance Sheet (i) prepared by the Debtor, and (ii) externally prepared;
- Cash disbursement ledgers (in .xls or .txt format) for the 12 months before bankruptcy filing; and
- Minutes of any board of directors meetings held in the 12 months before a bankruptcy filing.
- Also, new checking accounts will need to be opened with an approved depository for that district and old checking accounts closed. The new checking accounts will note the business is operating under Chapter 11 as a “chapter 11 debtor in possession.”
- The Debtor in Possession must also close its books and records as of the petition date and open new books and records. The Debtor in Possession must separately account for pre‐and post‐petition accounts receivable and payable in all reporting
Important Initial Deadlines
- We have already discussed one of the most critical deadlines which come on the first day. There are various first-day motions that probably need to be filed. A motion for the use of cash collateral should be submitted as soon as possible. Until this motion is approved, the business is closed, and the hearing on this motion should be expedited. The cash collateral motion grants the approval to spend funds for salaries and operating expenses. An attached budget should explain what expenses will be paid from the operating accounts.
- Also, a motion to approve the hiring of professionals will need to be filed. Until this motion is approved, your attorney and accountants can’t work and be paid.
- An initial interview is held within ten days after filing to provide the US Trustee and his auditor with documentation. This meeting goes over several of the duties of the Debtor during Chapter 11 SBRA.
- A status conference will be held after this initial interview to discuss with the judge what progress the Debtor has made and what the goals and duties are. This meeting is required by 11 U.S.C. § 1188(a) in an SBRA case. Fourteen days before that status conference, the Debtor must file with the court a report on his efforts to obtain a consensual plan for an SBRA Chapter 11. This report is required by 11 U.S.C. § 1188(c).
- The Chapter 11 plan is required to be filed within 90 days of filing the case. If there is some reason for an extension of the 90 days, it is important that the plan is delayed due to circumstances beyond the Debtor’s control or under which he is not accountable. 11 U.S.C. § 1189(b).
Come on; you are only 1/3rd through the Kentucky SBRA Small Business Bankruptcy Checklist.
Miscellaneous SBRA Deadlines
- Any special issues in the case including, but not limited to, the appointment of a patient care ombudsman if the business provides health care for its employees or customers should be done before the status conference.
- Whether and when adversary proceedings might be filed.
- A claims bar date.
- A deadline for motions to assume or reject leases and contracts under 11 U.S.C. § 365(d).
- The contents of the Debtor’s Status Conference Report, including efforts made to attain a consensual plan, pursuant to 11 U.S.C. §1188 (c).
- Deadlines for proof of claims and creditors to make elections, if appropriate has to be established under 11 U.S.C. §1111 (b)
Ok, you are 2/3rds through the Kentucky SBRA Small Business Bankruptcy Checklist.
Miscellaneous SBRA Duties
- Taxes and insurance have to be maintained. Seven days before the initial interview, the Debtor is supposed to provide to the trustee adequate proof of insurance. The loss payable should be changed to and read “ABC corporation debtor in possession” or “Bob Smith debtor in possession if Chapter 11 is for an individual”.
- Monthly operating reports also have to be timely filed. There is a form for this Official Form 425C attach to any supporting attachments. But Post‐confirmation reports are not required according to Interim Bankruptcy Rule 2015(a)(5). These monthly operating reports are due no later than 20 days after the end of the reporting month.
- I understand your SBRA may not be for an individual, but an individual filing must get the approval of a budget. Any income earned after the start of the case is property of the bankruptcy estate. 11 U.S.C. § 1115(a)(2). So an individual debtor in possession must provide “notice and a hearing” before using any income for personal living expenses. See 11 U.S.C. § 363(b)(1). The same general idea applies to business. All the profit is property of the estate, and there is a duty to repay the creditors with your best efforts.
- There is also a Duty to Cooperate under 11 U.S.C. § 521(a)(3) with the trustee. Look at the other post we have about the Debtor’s duties under the SBRA.
Now you are through the Kentucky SBRA Small Business Bankruptcy Checklist, but this was just the first 90 days and start of the case.