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June 17, 2021
New Standardized MORs Required for Ch. 11 Cases
By Erik White, CIRA

Starting in June 2021, debtors-in-possession and chapter 11 trustees will have new standardized reports to complete. Congress authorized enhanced and uniform bankruptcy reporting requirements aimed at facilitating the compilation of and access to bankruptcy data. Two new report forms have been established by the United States Trustee to be rolled out across the country replacing over 150 different forms.

What are Monthly Operating Reports?

Debtors-in-possession and chapter 11 trustees are required by the Bankruptcy Code to file periodic reports and account for the receipt, administration and disposition of all property during the pendency of a chapter 11 case. The United States Trustee, often seen as the watchdog for the bankruptcy court, is responsible for establishing rules and contents of the periodic reports. Periodic reporting requirements continue while the case is on-going, including after the confirmation of a plan but prior to a final decree being entered.

Prior to confirmation, debtors-in-possession or chapter 11 trustees are required to file monthly reports, which are generally known as monthly operating reports (MORs). Reorganized debtors or post-confirmation trusts are required to file quarterly reports, which are generally known as post-confirmation reports (PCR), after the confirmation of a plan of reorganization and before the case is closed.

Why are these reports important?

The MOR provides vital financial transparency to the various stakeholders (i.e., creditors, Judge, etc.) of the operations and financial condition of the debtor or debtor-in-possession. The MOR helps stakeholders evaluate:

  • Is the debtor-in-possession or chapter 11 trustee properly administering the estate? Are cash collateral orders or the plan of reorganization in compliance? Are any payments being made to professionals or pre-petition creditors without court approval?
  • Does the debtor-in-possession or debtor have a reasonable likelihood of rehabilitation? Is there sufficient liquidity to continue to operate and to meet the requirements as debtor or debtor-in-possession?

What are the changes?

There are now two standards reports to be used in all cases across the country under the United States Trustee program, including a 4-page MOR for reporting prior to confirmation and a 3-page report following confirmation until the case is closed.

The new standard reports are data-enabled and data-embedded. It is a requirement to follow the procedures to maintain these features when filing. Said differently, the forms must be utilized as intended—you can no longer submit scanned versions or Excel-printed-to-PDF versions.

There are now two signatures required: one on the first page from the person responsible for filing the report, and one on the last page signed by the individual who is authorized under applicable law and is responsible for certifying under penalty of perjury that the MOR and its supporting documentation are true and correct on behalf of the debtor or trustee.

When are the changes effective?

The new forms go into effective June 21, 2021. Coincidentally, this is the date that reports for the May reporting period are due. The United States Trustee expects the new forms to be used for the first time for the June reporting period, which is due by July 21, 2021.

What information is required in the new forms?

The new MOR forms require certain mandatory information be entered into the PDF form, including summary information about the number of employees, cash flow, profitability, tax obligations, professional fees, and, in the case of the PCR, creditor recoveries by class.

Additional information may be required as attachments, including full financial statements and bank statements as determined by the United States Trustee for each case.

Who is impacted by the new forms?

Debtors-in-possession or Trustees in all chapter 11 cases excluding “small business debtors” or subchapter V debtors must use the new forms for reports filed after June 21, 2021.

What are the benefits?

The new reports create standardization nationwide, especially compared to the patchwork of over 150 different forms currently in use. Utilizing the data-enabled/embedded features of the new reports, access to bankruptcy data should be more efficient and effective, especially with respect to professional fees where there is more detailed and granular information.

The forms are straightforward and allow for additional information directly from Debtor’s accounting system to be attached, including income statement, balance sheet, statement of cash flows, and other information as determined by the United States Trustee.

What are the challenges / risks?

It will take time to educate bankruptcy professionals about the information and submittal requirements for the new forms.

Also, given the manual requirements of the entering the detailed information, it may be cumbersome for large, complex cases that have numerous debtors. In these cases, it is not expected that Debtors will be allowed to file a consolidated MOR with detailed disbursement information, as has been the practice historically.

What if I have further questions?

The United States Trustee’s website has report instructions and information.

Need additional help? Contact Harney Partners. We have 30+ years in roles as financial advisor and fiduciaries on behalf of debtors.

Erik_White
Erik White, CIRA
Managing Director

Erik has amassed more than 14 years of experience in corporate finance, business restructuring, forensic consulting and asset management. He provides strategic advisory services, both financial and operational, to companies experiencing a complex transition.  From Fortune 500 to lower middle-market companies, Erik has the depth and breadth of knowledge and experience to support clients in distressed situations.