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42.6 SOURCES AND SUGGESTED REFERENCES 42 27 • investors give little, if any, weight to book value in appraising the securities of companies with the high rates of earnings on capital that are characteristic of this industry. It should also be noted that we have not used a discounted future benefits approach because ABC’s prospective growth rates are roughly comparable to those of the guideline companies. The adjusted valuation ratios are, therefore, a reflection of both the growth rate and the capitalization rate appropriate to ABC Snack Foods, Inc., on the valuation date. Dividing the preliminary value of $62,382,000 by the 100,000 shares outstanding results in a freely traded value (the price at which the stock would trade in an active market) of $624 per share. The fact that the ABC stock lacks ready marketability must be reflected by a discount for lack of marketability. We think that a discount of 30% is appropriate. This results in a value for the common stock of $437 per share. It is our conclusion that a block of 20,000 shares had a fair market value of $437 per share as of March 31, 2009, or $8,740,000 for the entire block. 42.6 SOURCES AND SUGGESTED REFERENCES Blackman, L., The Valuation of Privately-Held Businesses. Probus Publishing, Chicago, 1986. Brown, Ronald L., Valuing Professional Practices and Licenses: A Guide for the Matrimonial Practitioner. Prentice-Hall, Englewood Cliffs, NJ, 1987. Burke, Frank M., Jr., Valuation and Valuation Planning for Closely-Held Businesses. Prentice-Hall, Englewood Cliffs, NJ, 1981. Ibbotson, Roger A., Stocks, Bonds, Bills and Inflation. Ibbotson Associates, Chicago, 1989. Internal Revenue Service, IRS Valuation Guide for Income, Estate & Gift Taxes. Commerce Clearing House, Chicago, 1985. , Revenue Ruling No. 59-60. U.S. Treasury Dept., Washington, DC. Maher, J. Michael, “Discounts for Lack of Marketability for Closely-Held Business Interests,” Taxes—The Tax Magazine, September 1976, pp. 562–71. Moroney, Robert E., “Most Courts Overvalue Closely Held Stocks,” Taxes—The Tax Magazine, March 1973, pp. 144–154. Pratt, Shannon P., ed., Readings in Business Valuation. American Society of Appraisers Educational Foundation, 1986. , Valuing Small Businesses and Professional Practices. Dow Jones-Irwin, Homewood, IL, 1986. , Valuing a Business, 2nd ed. Dow Jones-Irwin, Homewood, IL, 1989. Schackelford, Aaron L., “Valuation of S Corporations,” Business Valuation Review, December 1988, pp. 159–162. Schnepper, J. A., The Professional Handbook of Business Valuation. Addison-Wesley, Reading, MA, 1982. Smith, Gordon V., Corporate Valuation. John Wiley & Sons, New York, 1988. Standard & Poor’s Corporation, Standard Corporation Records. Standard & Poor’s, New York, annual update. CHAPTER 43 BANKRUPTCY Grant W. Newton, PhD, CPA, CIRA Pepperdine University 43.1 OVERVIEW 43.2 ALTERNATIVES AVAILABLE TO TROUBLED COMPANIES (a) Out-of-Court Settlements (i) Appointment of Creditors’ Committee (ii) Plan of Settlement (b) Assignment for Benefit of Creditors (c) Bankruptcy Court Proceedings (i) Title 11—Bankruptcy Code (ii) Chapter 7—Liquidation (iii) Chapter 12—Adjustment of Debt of a Family Farmer with Regular Annual Income (iv) Prepackaged Chapter 11 Plans (d) The Accountant’s Services in Proceedings 43.3 GENERAL PROVISIONS OF BANKRUPTCY CODE (a) Filing of Petition (b) Timing of Petition—Tax Considerations (c) Accounting Services— Accounting Data Required in the Petition (d) Adequate Protection and Automatic Stay (i) Relief from the Stay (ii) Accounting Services— Determining Equity in Property (e) Executory Contracts and Leases 2 2 2 3 3 3 3 4 4 5 6 7 7 7 8 8 9 10 10 11 (i) Limitations on Executory Contracts (ii) Accounting Services— Rejection of Executory Contracts (f) Avoiding Power (g) Preferences (i) Exceptions to Preferential Transfers (ii) Accounting Services— Search for Preferential Payments (h) Fraudulent Transfers (i) LBO as a Fraudulent Transfer (ii) Accounting Services— Search for Fraudulent Transfers (i) Postpetition Transfers (i) Adequate Value Received (ii) Accounting Services— Preventing Unauthorized Transfers (j) Setoffs (i) Early Setoff Penalty (ii) Accounting Services— Setoffs (k) Reclamation (l) U.S. Trustee 43.4 HANDLING OF CLAIMS UNDER CHAPTER 11 (a) Proof of Claims (b) Undersecured Claims (c) Administrative Expenses (d) Priorities (e) Processing of Claims 11 11 12 12 12 13 14 14 14 14 15 15 15 15 15 16 16 16 17 17 17 18 18 43 1 • 43 2 • BANKRUPTCY 43.5 OPERATING UNDER CHAPTER 11 19 (a) Use of Property (i) Cash Collateral (ii) Accounting Services— Assisting Debtor in Providing Information to Secured Lender (b) Obtaining Credit (c) Appointment of Trustees (d) Appointment of Examiner (i) Functions of Examiner (ii) Accountants as Examiners (e) Operating Statements (f) Reporting in Chapter 11 (i) Balance Sheet (ii) Statement of Operations (iii) Statement of Cash Flows 19 19 43.6 CHAPTER 11 PLAN (a) Classification of Claims (b) Development of Plan (c) Disclosure Statement (i) Definition of Adequate Information (ii) Content (d) Confirmation of Plan (e) Confirmation Requirements (f) Accounting Services— Assistance to Debtor (i) Liquidation Value of Assets (ii) Projections of Future Operations (iii) Reorganization Value 20 20 21 21 22 22 22 22 23 24 25 26 26 26 27 27 27 29 29 30 30 30 31 (iv) Pro Forma Balance Sheet (v) Reorganization Model (g) Accounting Services— Assistance to Creditors’ Committee (i) Assistance in the Bargaining Process (ii) Evaluation of Debtor’s Projections (iii) Reorganization Value (iv) Review of Plan and Disclosure Statement (h) Accounting for the Reorganization (i) Requirements for Fresh Start Reporting (ii) Allocation of Reorganization Value (iii) Disclosure Requirements (iv) Reporting by Debtors Not Qualifying for Fresh Start (i) Accounting for the Impairment of Long-Lived Assets Under Chapter 11 43.7 REPORTING REQUIREMENTS IN BANKRUPTCY CASES (a) (b) (c) (d) (e) Litigation Services Disclosure Requirements Operating Reports Investigative Services Financial Projections 43.8 SOURCES AND SUGGESTED REFERENCES 31 31 32 32 32 33 33 34 34 34 35 35 36 37 37 38 38 39 40 41 43.1 OVERVIEW This chapter contains a brief description of the Bankruptcy Code, a discussion of the services that can be rendered by the accountant, and an introduction to the problems faced by accountants working in the bankruptcy area. 43.2 ALTERNATIVES AVAILABLE TO TROUBLED COMPANIES The debtor’s first alternatives are to locate new financing, to merge with another company, or to find some other basic solution to its situation that avoids the necessity of discussing its problems with representatives of creditors. If none of these alternatives is possible, the debtor may be required to seek a remedy from creditors, either informally (out of court) or with the help of judicial proceedings. (a) OUT-OF-COURT SETTLEMENTS. The informal settlement is an out-of-court agreement that usually consists of an extension of time (stretch-out), a pro rata cash payment for full settlement of claims (composition), an issue of stock for debt, or some combination. The debtor, through counsel or credit association, calls an informal meeting of the creditors for the purpose of discussing its fi- 43.2 ALTERNATIVES AVAILABLE TO TROUBLED COMPANIES 43 3 • nancial problems. In many cases, the credit association makes a significant contribution to the outof-court settlement by arranging a meeting of creditors, providing advice, and serving as secretary for the creditors’ committee. A credit association is composed of credit managers of various businesses in a given region. Its functions are to provide credit and other business information to member companies concerning their debtors, to help make commercial credit collections, to support legislation favorable to business creditors, and to provide courses in credit management for members of the credit community. At the creditors’ meeting, the debtor describes the causes of failure, discusses the value of assets (especially those unpledged) and unsecured liabilities, and answers any questions the creditors may ask. The main objective of this meeting is to convince the creditors that they would receive more if the business were allowed to operate than if it were forced to liquidate and that all parties would benefit from working out a settlement. (i) Appointment of Creditors’ Committee. To make it easier for the debtor to work with the creditors, a committee of creditors is normally appointed during the initial meeting of the debtor and its creditors, providing, of course, the case is judged to warrant some cooperation by the creditors. It should be realized that the creditors are often as interested in working out a settlement as is the debtor. The creditors’ committee serves as the bargaining agent for the creditors, supervises the operation of the debtor during the development of a plan, and solicits acceptance of a plan once the committee has approved it. Generally, the creditors’ committee meets immediately after appointment for the purpose of selecting a presiding officer and counsel. (ii) Plan of Settlement. Provided there is enough time, it is often advisable that the accountant and the attorney assist the debtor in preparing a suggested plan of settlement for presentation and discussion at the first meeting with creditors. Typically only the largest creditors and a few representatives of the smaller creditors are invited so that the group is a manageable size for accomplishing its goals. There is no set pattern for the form that a plan of settlement proposed by the debtor must take. It may call for 100% payment over an extended period of time, payments on a pro rata basis in cash for full settlement of creditors’ claims, satisfaction of debt obligations with stock, or some combination. A carefully developed forecast of projected operations, based on realistic assumptions developed by the debtor with the aid of its accountant, can help creditors determine whether the debtor can perform under the terms of the plan and operate successfully in the future. (b) ASSIGNMENT FOR BENEFIT OF CREDITORS. A remedy available under state law to a corporation in serious financial difficulties is an assignment for the benefit of creditors. In this instance, the debtor voluntarily transfers title to its assets to an assignee, who then liquidates them and distributes the proceeds among the creditors. Assignment for the benefit of creditors is an extreme remedy because it results in the cessation of the business. This informal liquidation device (although court-supervised in many states) is like the out-of-court settlement devised to rehabilitate the debtor, in that it requires the consent of all creditors or at least their agreement to refrain from taking action. The appointment of a custodian over the assets of the debtor gives creditors the right to file an involuntary bankruptcy court petition. Proceedings brought in the federal courts are governed by the Bankruptcy Code. Normally it is necessary to resort to such formality when suits have been filed against the debtor and its property is under garnishment or attachment or is threatened by foreclosure or eviction. (c) BANKRUPTCY COURT PROCEEDINGS. Bankruptcy court proceedings are generally the last resort for the debtor whose financial condition has deteriorated to the point where it is impossible to acquire additional funds. When the debtor finally agrees that bankruptcy court proceedings 43 4 • BANKRUPTCY are necessary, the liquidation value of the assets often represents only a small fraction of the debtor’s total liabilities. If the business is liquidated, the creditors get only a small percentage of their claims. The debtor is discharged of its debts and is free to start over; however, the business is lost and so are all the assets. Normally, liquidation proceedings result in large losses to the debtor, the creditors, and the business community in general. Chapter 7 of the Bankruptcy Code covers the proceedings related to liquidation. Another alternative under the Bankruptcy Code is to seek some type of relief so that the debtor, with the help of the bankruptcy court, can work out agreements with creditors and be able to continue operations. Chapters 11, 12, and 13 of the Bankruptcy Code provide for this type of operation. (i) Title 11—Bankruptcy Code. Title 11 U.S. Code contains the bankruptcy law. The code is divided into eight chapters: Chapter 1 Chapter 3 Chapter 5 Chapter 7 Chapter 9 Chapter 11 Chapter 12 Chapter 13 General Provisions Case Administration Creditors, the Debtor, and the Estate Liquidation Adjustment of Debts of a Municipality Reorganization Adjustment of Debts of a Family Farmer with Regular Income Adjustment of Debts of an Individual with Regular Income Chapters 1, 3, and 5 apply to all proceedings under the code except chapter 9, where only specified sections of chapters 1, 3, and 5 apply. A case commenced under the Bankruptcy Code—chapter 7, 9, 11, 12, or 13—is referred to as a Title 11 case. Chapter 13, which covers the adjustment of debts of individuals with regular income, is beyond the scope of this presentation because it can be used only by individuals with unsecured claims of less than $290,525 and secured claims of less than $871,550. The dollar amount of the debt limits for a chapter 13 petition are to be increased to reflect the change in the Consumer Price Index for All Urban Consumers on April 1 every third year. The amounts are to be rounded to the nearest $25 multiple. The next three-year-period adjustment will be made on April 1, 2004. Provisions relating to Chapter 11 are discussed in detail in a separate section. (ii) Chapter 7—Liquidation. Chapter 7 is used only when the corporation sees no hope of being able to operate successfully or to obtain the necessary creditor agreement. Under this alternative, the corporation is liquidated and the remaining assets are distributed to creditors after administrative expenses have been paid. An individual debtor may be discharged from liabilities and entitled to a fresh start. A corporation’s debt is not discharged. The decision as to whether rehabilitation or liquidation is best also depends on the amount that can be realized from each alternative. The method resulting in the greatest return to the creditors and stockholders should be chosen. The amount received from liquidation depends on the resale value of the firm’s assets minus the costs of dismantling and legal expenses. The value of the firm after rehabilitation must be determined (net of the costs of achieving the remedy). The alternative leading to the highest value should be followed. Financially troubled debtors often attempt an informal settlement or liquidation out of court; if it is unsuccessful, they will then initiate proceedings under the Bankruptcy Code. Other debtors, especially those with a large number of creditors, may file a petition for relief in the bankruptcy court as soon as they recognize that continuation of the business under existing conditions is impossible. As soon as the order for relief has been entered, the U.S. trustee appoints a disinterested party from a panel of private trustees to serve as the interim trustee. The functions and powers of the in- 43.2 ALTERNATIVES AVAILABLE TO TROUBLED COMPANIES 43 5 • terim trustee are the same as those of an elected trustee. Once an interim trustee has been appointed, the creditors meet to elect a trustee that will be responsible for liquidating the business. If a trustee is not elected by the creditors, the interim trustee may continue to serve in the capacity of the trustee and carry through with an orderly liquidation of the business. The objective of the trustee is to liquidate the assets of the estate in an orderly manner. Once the property of the estate has been reduced to money and the security claims have been satisfied to the extent allowed, then the property of the estate is distributed to the holders of the claims in the order specified by the Bankruptcy Code. The first order, of course, is priority claims; when they have been established, the balance goes to unsecured creditors. After all the funds have been distributed, the remaining debts of an individual are discharged. As mentioned earlier, if the debtor is a corporation, the debts are not discharged. Thus it is necessary for the corporation to cease existence. Any funds subsequently coming into the corporate shell would be subject to attachment. (iii) Chapter 12—Adjustment of Debt of a Family Farmer with Regular Annual Income. To help farmers resolve some of their financial problems, Congress passed Chapter 12 of the Bankruptcy Code. It became effective November 26, 1986, and is scheduled to expire December 31, 2002. However, on previous occasions when the chapter 12 provisions were scheduled to end, Congress has extended the date and at times extended it after it expired. Because chapter 12 is new and relates to a specific class of debtors, Congress will evaluate whether the chapter is serving its purpose and whether there is a need to continue this special chapter for the family farmer. After Congress makes this evaluation, it will be able to determine whether to make this chapter permanent. If Congress does not act to either extend the date or make chapter 12 permanent, chapter 12 will terminate on October 1, 1998. Under current law, a family farmer in need of financial rehabilitation may file either a Chapter 11 or 13 petition. Most family farmers, because they have too much debt to qualify, cannot file under chapter 13 and are limited to Chapter 11. Many farmers have found Chapter 11 needlessly complicated, unduly time-consuming, inordinately expensive, and, in too many cases, unworkable. Chapter 12 is designed to give family farmers an opportunity to reorganize their debts and keep their land. According to legislative history, chapter 12 gives debtors the protection from creditors that bankruptcy provides while, at the same time, it prevents abuse of the system and ensures that farm lenders receive a fair repayment. In order to file a petition, an individual or an individual and spouse engaged in farming operations must have total debt that does not exceed $1,500,000, and at least 80% of noncontingent, liquidated debts (excluding debt from principal residence unless debt arose out of family operations) on the date the petition is filed must have arisen out of farming. Additionally, more than 50% of the petitioner’s gross income for the taxable year prior to the filing of the petition must be from farming operations. A corporation or partnership may file if more than 50% of the outstanding stock or equity is owned by a family and: • • • More than 80% of the value of its assets consist of assets related to farming operations. The total debts do not exceed $1,500,000 and at least 80% of its noncontingent, liquidated debts on the date the case is filed arose out of farming operations. The stock of a corporation is not publicly traded. Only the debtor can file a plan in a chapter 12 case. The requirements for a plan in chapter 12 are more flexible and lenient than those in Chapter 11. In fact, only three requirements are set forth in Section 1205 of the Bankruptcy Code. First, the debtor must submit to the supervision and control of the trustee all or such part of the debtor’s future income as is necessary for the execution of the plan. Second, the plan must provide for full payment, in deferred cash payments, of all priority claims unless the creditors agree to a different treatment. Third, where creditors are divided into classes, the 43 6 • BANKRUPTCY same treatment must apply to all claims in a particular class. The plan can alter the rights of secured creditors with an interest in real or personal property, but there are a few restrictions. To alter the right of the secured claim holder, the debtor must satisfy one of the following three requirements: 1. Obtain acceptance of the plan 2. Provide in the plan that the holder of such claim retain the lien and as of the effective date of the plan provide that the payment to be made or property to be transferred is not less than the amount of the claim 3. Surrender the property securing such claim If a holder of an allowed unsecured claim does not accept the plan, then the court may not approve the plan unless the value of the property to be distributed is equal to at least the amount of the claim and the plan provides that all of the debtor’s projected disposable income to be received within three years, or longer if directed by the court, after the first payment is made will be a part of the payments under the plan. To facilitate the operation of the business and the development of a plan, Section 1206 of the Bankruptcy Code allows family farmers to sell assets not needed for the reorganization prior to confirmation without the consent of the secured creditor, provided the court approves such a sale. (iv) Prepackaged Chapter 11 Plans. Before filing a Chapter 11 plan, some debtors develop a plan and obtain approval of the plan by all impaired claims and interests. The court may accept the voting that was done prepetition provided that the solicitation of the acceptance (or rejection) was in compliance with applicable nonbankruptcy laws governing the adequacy of disclosure in connection with the solicitation. If no nonbankruptcy law is applicable, then the solicitation must have occurred after or at the time the holder received adequate information as required under Section 1125 of the Bankruptcy Code. It is often necessary for a Chapter 11 plan to be filed for several reasons including the following three: 1. Income from debt discharge is taxed in an out-of-court workout to the extent that the debtor is or becomes solvent. While some tax attributes may be reduced in a bankruptcy case, the gain from debt discharged is not taxed. 2. A larger percent of the net operating loss may be preserved if a Chapter 11 petition is filed. For example, the provisions of Sections 382(l)(5) and 382(l)(6) of the Internal Revenue Code (IRC) dealing with net operating losses only apply to bankruptcy cases. 3. A smaller percentage of creditor approval is needed in Chapter 11. Only two-thirds of the dollar amount of debt represented by those creditors voting and a majority in number in each class are necessary in Chapter 11. However, for any out-of-court workout to succeed, the percentage accepting the plan must be much greater. For example, some bond indenture agreements provide that amendments cannot be made unless all holders of debt approve the modifications. Since it is difficult, if not impossible, to obtain 100% approval, it is necessary to file a bankruptcy plan to reduce interest or modify the principal of the bonds. Since the professional fees and other costs, including the cost of disrupting the business, of a prepackaged plan are generally much less than costs of a regular Chapter 11 bankruptcy, a prepackaged bankruptcy may be the best alternative. The use of a prenegotiated plan is common among public companies today. A prenegotiated plan is a modification of the prepackaged bankruptcy in that the voting is completed after the petition has been filed rather than before the plan is filed. In a prenegotiated plan, the debtor reaches an agreement with the major creditors and then files a plan either at the time or shortly after the Chapter 11 petition is filed. For public companies, the filing of the petition before vot- 43.3 GENERAL PROVISIONS OF BANKRUPTCY CODE 43 7 • ing allows all documents related to the plan to be filed with the bankruptcy court and eliminates the need to follow the SEC requirements in the voting process. (d) THE ACCOUNTANT’S SERVICES IN PROCEEDINGS. One of the first decisions that must be made at an early meeting of the debtor with bankruptcy counsel and accountants is whether it is best to liquidate (under provisions of state law or Bankruptcy Code), to attempt an out-of-court settlement, to seek an outside buyer, or to file a Chapter 11 petition. To decide which course of action to take, it is also important to ascertain what caused the debtor’s current problems, whether the company will be able to overcome its difficulties, and, if so, what measures will be necessary. Accountants may be asked to explain how the losses occurred and what can be done to avoid them in the future. To help with this determination, it may be necessary to project the operations after a 30-day period over at least the next three to six months, and to indicate the areas where steps will be necessary in order to earn a profit. For existing clients, the information needed to make a decision about the course of action to make may be obtained with limited additional work; however, for a new client, it is necessary to perform a review of the client’s operations to determine the condition of the business. Once the review has been completed, the client must normally decide to liquidate the business, attempt an informal settlement with creditors, or file a Chapter 11 petition, unless additional funds can be obtained or a buyer for the business is located. For example, where the product is inferior, the demand for the product is declining, the distribution channels are inadequate, or other similar problems exist that cannot be corrected, either because of the economic environment or management’s lack of ability, it is normally best to liquidate the company immediately. The decision whether a business should immediately file a Chapter 11 petition or attempt an outof-court settlement depends on several factors. Among them are the following eight: 1. Size of company a. Public b. Private 2. Number of creditors a. Secured b. Unsecured c. Public d. Private 3. Complexity of matter a. Nature of debt b. Prior relationships with creditors 4. Pending lawsuits 5. Executory contracts, especially leases 6. The impact of alternatives selected 7. Nature of management a. Mismanagement b. Irregularities 8. Availability of interim financing 43.3 GENERAL PROVISIONS OF BANKRUPTCY CODE (a) FILING OF PETITION. A voluntary case is commanded by the debtor’s filing of a bankruptcy petition under the appropriate chapter. 43 8 • BANKRUPTCY An involuntary petition can be filed by three or more creditors (if 11 or fewer creditors, only one creditor is necessary) with unsecured claims of at least $10,000 and can be initiated only under chapter 7 or 11. An indenture trustee may be one of the petitioning creditors. The Court allows a case to proceed only if (1) the debtor generally fails to pay its debts as they become due, provided such debts are not the subject of a bona fide dispute; or (2) within 120 days prior to the petition a custodian was appointed or took possession. The latter excludes the taking of possession of less than substantially all property to enforce a lien. (b) TIMING OF PETITION—TAX CONSIDERATIONS. The timing for filing the petition is important. For example, if the debtor delays filing the petition until the creditors are about to force the debtor into bankruptcy, the debtor may not be in a position to effectively control its destiny. On the other hand, if the petition is filed when the problems first develop and while the creditors are reasonably cooperative, the debtor is in a much better position to control the proceeding. If possible, it is best to file the petition near the end of the month or, even better, near the end of the quarter, to avoid a separate closing of the books. Tax factors should also be considered in deciding when to file the petition. For example, if a debtor corporation that has attempted an unsuccessful out-of-court settlement decides to file a petition, the tax impact of the out-of-court action should be considered. If, in the out-of-court agreement, the debtor transferred property that resulted in a gain and a substantial tax liability, it would be best for the debtor to file the petition after the end of the current taxable year. By taking this action, the tax claim is a prepetition tax claim and not an administrative expense. If the tax claim is a prepetition claim, interest and penalties stop accruing on the day the petition is filed and the debtor may provide in the plan for the deferral of the tax liability up to six years. If the tax claim is an administrative expense, penalties and interest on any unpaid balance will continue to accrue and the provision for deferred payment of up to six years does not apply. (c) ACCOUNTING SERVICES—ACCOUNTING DATA REQUIRED IN THE PETITION. The accountant must supply the attorney with certain information necessary for filing a Chapter 11 petition. This would normally include the following: • • • • List of Largest Creditors. A list containing the names and addresses of the 20 largest unsecured creditors, excluding insiders, must be filed with the petition in a voluntary case. In an involuntary situation, the list is to be filed with the petition in a voluntary case. In an involuntary petition, the list is to be filed within two days after entry of the order for relief. See Bankruptcy Rule 1007 and Bankruptcy Form 4. List of Creditors. The debtor must file with the court a list of the debtor’s creditors of each class, showing the amounts and character of any claims and securities and, so far as is known, the name and address or place of business of each creditor and a notation whether the claim is disputed, contingent, or unliquidated as to amount, when each claim was incurred and the consideration received, and related data. List of Equity Security Holders. It is necessary to provide a list of the debtor’s security holders of each class showing the number and kind of interests registered in the name of each holder and the last known address or place of business of each holder. Schedules of Assets and Liabilities. The schedules that must accompany the petition (or filed within 15 days after the petition is filed—unless the court extends the time period) are sworn statements of the debtor’s assets and liabilities as of the date the petition is filed under Chapter 11. These schedules consist primarily of the debtor’s balance sheet broken down into detail, and the accountant is required to supply the information generated in the preparation of the normal balance sheet and its supporting schedules. The required information is supplied on Schedules A through C, which include a complete statement of assets, and Schedules D through F, which are a complete statement of liabilities. Schedule G requires the debtor to list all executory contracts and unexpired leases. It is crucial that this information be accurate and