Commercial Bankruptcies: Material Misstatements

The items below are excerpted from the Business Bankruptcy News Bulletin. A full issue contains information on dozens of troubled companies, as well as informational and analysis highlights. Please visit the insideARM bookstore for information on subscribing to the Bulletin.

Nowhere in the U.S. Bankruptcy Code is the phrase “material misstatement” defined.  Nevertheless, the code requires that material misstatements be identified and reported.  As a general rule of thumb, a material misstatement is considered an inaccuracy or omission that compromises the integrity and reliability of the bankruptcy documents that were filed.  Moreover, such a misstatement could impede a determination of whether there are sufficient estate assets to administer or whether an enforcement action should be taken.  The code does require that complete and accurate disclosure be reported by the auditing firms involved.  Specifically, auditing firms must identify the omission or discrepancy in its audited report to the bankruptcy court stating how much was understated, on a month-to-month basis.  The reason no strict definition is given for material misstatements is that to do so could jeopardize the deterrent value of debtor auditors.

Reclamation Demands: A Creditor’s Natural Defense                        

Many smaller creditors may feel helpless when they find themselves low on the list of creditors when a large company files for bankruptcy protection. But smaller companies do have a recourse to protect themselves in the form of a reclamation demand. Such a reclamation provides a creditor the right to demand that goods, which had been shipped to a customer, be returned if the customer files for Chapter 11 within a specific time period of receiving the goods. If the goods can’t be returned, the seller’s unsecured claim may be converted into an administrative expense priority claim. This move gives the claim a higher priority than ordinary unsecured creditors’ claims. Further, companies don’t even have to wait for the bankruptcy filing in order to file a reclamation demand, which can be filed if evidence is presented that the customer is officially insolvent.

8250 International Drive Corp., Orlando, Fl., filed Chapter 11 in the U.S. Bankruptcy Court for the Southern District of New York. The firm listed assets and liabilities of between $100 million and $500 million each. The filing was under case number 10-10276. For more information contact the court at 866-232-1268.

ACIH Inc., Dallas, Tx., filed Chapter 11 in the U.S. Bankruptcy Court in Delaware. The firm listed assets of less than $100,000 and liabilities of between $500 million and $1 billion each. The filing was under case number 10-10151. For more information contact the court at 302-252-2560.

B.S. Acquisition Corp., West Roxbury, Ma., filed Chapter 11 in the U.S. Bankruptcy Court for the Southern District of New York. The firm listed assets and liabilities of between $100 million and $500 million each. The filing was under case number 10-10284. Also filing was B.S. of Woodbridge Inc. under case number 10-10286. For more information contact the court at 866-232-1268.

Southeastern Newspapers Co. LLC, Augusta, Ga., filed Chapter 11 in the U.S. Bankruptcy Court for the Southern District of Georgia. The firm listed assets of between $10 million and $50 million and liabilities of between $100 million and $500 million. The filing was under case number 10-10143. Also filing was Southwestern Newspapers Co. LP under case number 10-10144. For more information contact the court at 912-280-1376.

Uno of New York Inc., Central Valley, N.Y., filed Chapter 11 in the U.S. Bankruptcy Court for the Southern District of New York. The firm listed assets and liabilities of between $100 million and $500 million each. The filing was under case number 10-10223.  Also filing were Uno of Astoria Inc. under case number 10-10211, Uno of Crestwood Inc. under case number 10-10220 and Uno of Massachusetts Inc. under case number 10-10215.  For more information contact the court at 866-232-1268.