Q: My company just filed a Chapter 11 bankruptcy reorganization proceeding. Our financial statements are a mess. We need to save every penny. Is the company excused from filing 10–Qs, 10–Ks and 8–Ks while we're in bankruptcy?
A: Unfortunately, no. Being in bankruptcy does not excuse you from making regular SEC filings.
Q: Well, if we have to make some filings, is there some way I can appeal for relief to the SEC?
A: Yes. You can ask the SEC for permission to modify your filing obligations during your bankruptcy. You will need to show that filing less detailed documents without audited financials instead of 10–Ks and 10–Qs will still protect your investors by giving them sufficient information about your business. If it agrees, the SEC may permit you to file these documents instead.
In considering your request, the SEC will consider:
- your company's financial condition,
- whether you have made an effort to notify the public and your investors about your financial condition,
- how difficult it would be for you to make the regular filings, and
- the amount of trading in your company's securities.
If you decide to seek relief, you should do so as soon as possible after your bankruptcy filing, and certainly before your first 10–Q or 10–K is due. Be sure to fully explain the following to the SEC:
- Did you completely and honestly disclose your financial position before filing for bankruptcy? Were all of your 10–Qs, 10–Ks and 8–Ks filed on time? How soon after entering bankruptcy did you make the announcement and file an 8-K? If you missed the deadline to file the 8–K, be sure to explain why.
- Explain why you can not continue filing 10–Ks and 10–Qs. Has the company stopped operating? If not, how much of your business is still operating? Are you able to fully complete the forms to make the regular filings at all? If you are able to, but it would be an undue hardship, explain why.
- Explain why making alternative filings would be enough to protect your investors and the public by giving them enough information about the state of your business.
- Explain the current market for your securities, and the impact the bankruptcy has had on the market. Generally, the more active the market is, the less likely the SEC will grant your request. If the company is still trading on a national exchange, for example, you will not be allowed to modify your reporting. If, on the other hand, trading has stopped completely, the SEC will be more likely to grant your request, so you should indicate this in your request.
Q: If the SEC lets us modify our reporting requirements, what's "normal"? In other words, what's the least we are likely to be permitted to file? After we come out of Chapter 11, do we immediately have to be in full compliance? Any grace period?
A: Companies in bankruptcy usually have to file monthly reports with the bankruptcy court. If the SEC grants your request for modified reporting, it would normally allow you file these monthly reports instead of 10–Ks and 10–Qs. You will still need to file all of your 8-Ks, and satisfy any other Exchange Act requirements, such as the proxy and tender offer rules.
You will need to file an 8–K in connection with all major events in your reorganization. When you emerge from bankruptcy, you should file an 8–K including your audited balance sheet, and you will need to resume all regular filings, including the requirements for past audited financials. This means that you will need to have audited financials for some of the period when you were in bankruptcy.
Regular reporting begins as soon as you emerge from bankruptcy, with no grace period.
Q: While we are in bankruptcy, what's the effect of modified reporting on short-form registration statements, like S–8 and S–3? And can my officers and directors, and holders of privately purchased stock, still rely on Rule 144 if we are filing modified reports, or is that not possible?
A: Unfortunately, for as long as you file modified reports, your company will not be considered to be current in its Exchange Act reporting. As a result, you will not be able to file short-form registration statements. Also, your officers and directors, and holders of privately purchased stock, may not rely on Rule 144 until after the company resumes regular filing, and continues to file, on time, for the necessary time period.