ABI Commission to Study the Reform of Chapter 11
IV. Proposed Recommendations: Commencing the Case 47
also facilitate more meaningful discussions regarding the debtor’s viable reorganization options earlier in the chapter 11 case.
Based on the collective experiences of the Commissioners and recommendations from the advisory committee, the Commissioners identified various kinds of information that may be useful in making early valuation assessments. Such information includes the debtor’s prepetition tax returns, appraisals, and business plans, because these documents would contain information potentially relevant to valuation issues. Some of the Commissioners, however, voiced concerns about the required disclosure of such information, especially relating to the debtor’s business plans. These Commissioners were specifically concerned that the requirement to disclose business plans, including restructuring strategies that would be available to any requesting creditor upon the commencement of the debtor’s chapter 11 case, could result in a chilling effect on chapter 11 filings. The Commissioners therefore acknowledged the need to balance the benefits of additional and earlier disclosures with the likely confidentiality and strategic concerns of a potential chapter 11 debtor.
The Commissioners engaged in an in-depth discussion concerning the competing interests and potential value to the estate and stakeholders from additional and earlier disclosures. The Commission found that, on balance, additional and earlier disclosures by the debtor could assist in valuation determinations and should be required in certain specified circumstances. The Commission considered the advisory committee’s recommendation that a debtor should be required to disclose prepetition business plans only to the extent that the debtor shared such information with third parties prior to the petition date; requiring disclosure of this subset of information would prevent information asymmetries and ensure that all stakeholders would be similarly situated and on equal footing with respect to their information about the debtor’s financial affairs. Conversely, proprietary information that a debtor elected to withhold from third parties before filing its chapter 11 petition would be protected from mandatory disclosure in the case.
To mitigate some of the valid concerns raised by the Commissioners regarding the debtor’s confidentiality and strategy, the Commission agreed that the disclosure obligations should be subject to appropriate provisions regarding confidentiality and fiduciary outs. In addition, the debtor should be required to file only a list of the information included in its VIP if the trustee180 or a party in interest requests certain relief under the Bankruptcy Code. A party in interest would then be able to request copies of such disclosure documents. Finally, the Commission concluded that the additional disclosure information should not be filed with the U.S. Trustee as a matter of course to alleviate a debtor’s confidentiality concerns.181 With these modifications, the Commission approved the recommended VIP as outlined in the principles above.
180 As previously noted, references to the trustee are intended to include the debtor in possession as applicable under section 1107 of the Bankruptcy Code, and implications for debtors in possession also apply to any chapter 11 trustee appointed in the case. See supra note 76 and accompanying text. See generally Section IV.A.1, The Debtor in Possession Model. 181 The Freedom of Information Act generally applies to information in the possession of the U.S. Trustee. See Freedom of Information Act, http://www.justice.gov/ust/eo/foia/foia_request.htm. The U.S. Trustee’s obligation to comply with FOIA likely would weaken any confidentiality restrictions and intensify a debtor’s concerns regarding confidential and proprietary information. The Commission believed that the debtor and U.S. Trustee will be able to negotiate an acceptable protocol that provides the U.S. Trustee with sufficient information while protecting valid confidentiality and strategic concerns of the debtor.