I’m going to answer the question, “what is a disclosure statement?” Disclosure statement is part of the Chapter 11 process, where businesses and individuals with sophisticated financial situations are trying to reorganize their affairs. A plan of reorganization is the document where the debtor describes how the creditors are going to be treated. A disclosure statement is a document that contains financial information regarding the debtor that creditors are going to study, to decide whether they want to accept or reject the plan. Now the amount of information required will vary from case to case. Usually you need a balance sheet, you need an income statement, you have to have a description of, of why the debtor fell into financial difficulty, what has happened since the Chapter 11 case was filed, and projections showing how the debtor intends to be able to satisfy the obligations that it’s undertaking under the plan.
The first step in the process is for the bankruptcy court to consider whether the disclosure statement contains adequate information to enable a typical creditor to decide whether to accept or reject the plan. If the bankruptcy court decides that there’s not sufficient information, the court may tell the debtor to go back and make another try at giving more information, or it may just say, “look, tweak what you’ve got, amend the disclosure statement and then we’ll allow you to disseminate the disclosure statement and the plan for balloting.”
The disclosure statement phase is a very important phase in reorganization case because typically, once a disclosure statement is approved, and it’s sent out for balloting, there’s always a very good chance that creditors are going to vote to accept the plan. And once the plan is accepted and confirmed by a court, it’s binding on all other creditors, whether they voted to accept the plan or whether they’ve even voted at all.
