Corporate Bankruptcy Attorneys: 5 Reasons a Corporation Cannot File Without One

While you have the right to represent yourself, corporations do not have that right. The law requires corporations to have lawyers to appear on their behalf in court. So, even if the corporation is in financial straits, hiring a lawyer is a must. A corporation cannot represent itself through its officer or director. Your lawyer will help you with the paperwork and deadlines, advise you about which chapter to choose, help with your duties after filing, and work toward confirmation of the plan.

Corporations cannot appear in federal court without a lawyer. The rule comes from a nearly 200-year-old Supreme Court case. It makes sense for other artificial entities too, like LLC’s and partnerships. It is well settled that individuals can represent themselves in court. The corporations that the law has created, however, can’t speak for themselves. Courts across the country are consistent on the question. Companies have to have lawyers. The bankruptcy courts in South Dakota and Eastern Virginia confirm this.

Extensive Documentation of Assets and Liabilities

The court requires extensive documentation of assets and liabilities. There are many documents that have to be completed and deadlines for those documents are short. Among the most important papers are the schedules of assets and debts and the statement of financial affairs. They must be filed with the petition or within 14 days after filing. If you’re a small business in Chapter 11, you also need a balance sheet and a statement of operations, as well as a tax return. If you don’t have these documents, make sure to tell the court (you have to swear under penalty of perjury that they don’t exist.) Not providing these documents at the right time can be dangerous for the debtor. After you file, things will happen quickly. If your company is small, the court usually can’t give you more than 30 days to file the schedules and statement of financial affairs. When your company is failing, you have little time in bankruptcy court.

The Right Chapter

The differences between Chapters are vast. With no experience, you do not know which is best for the company. The right Chapter can help a business exit bankruptcy with value. The wrong one can sink it. A Chapter 7 liquidates a debtor’s business. The corporation doesn’t get any discharge in Chapter 7. A Chapter 11 is a reorganization. A so-called Subchapter V reorganization is a faster Chapter 11 bankruptcy for a “small business”. To qualify, your total debts have to come to $3,424,000 or less, and at least half of them must be from the business. A corporate reorganization will not normally put stockholders’ personal assets at risk, beyond the value of the stock. That’s because a corporation exists separate from its stockholders. Partnerships are different, and the business can put partners’ personal assets at risk.

Does Not End with Filing

Your job in Chapter 11 does not end with filing. The debtor-in-possession is a fiduciary who will have to account for the property, examine and object to claims, file tax returns, and only borrow new money with the court’s approval. For example, when you’re in a Chapter 11, you have to file reports showing revenues and expenses. This is a monthly duty.

After you file a bankruptcy case, you could be asked questions under oath at a meeting that is generally called the first meeting of creditors under section 341 of the bankruptcy code. A small business debtor must attend meetings set by the court and meetings with the U.S. trustee. Your senior management and your lawyers will be on the hot seat, fielding questions from the court, your creditors and the trustee. The debtor-in-possession must pay the trustee a quarterly fee too, starting at $325 but going to $30,000, depending on its disbursements. The U.S. Trustee monitors compliance with the disclosure duties, and if the debtor misses reports, the trustee may move to convert or dismiss the case. A trustee can be appointed for fraud, incompetence, or gross mismanagement. These rules can catch you off guard. An unsecured creditors’ committee is usually made up of the seven biggest unsecured claims, and one of its most important functions is to investigate the debtor’s conduct. The committee also has a major role in shaping the debtor’s plan of reorganization, and it may even hire its own lawyer if the court approves.

After a debtor files a Chapter 11 bankruptcy, the confirmation of a plan is not a guarantee. A plan of reorganization has to be confirmed by the court. Getting a plan confirmed requires a lot of strategic choices. Creditors are sorted into classes and the disclosure statement provides enough information to help them decide whether to support or oppose the plan. Each impaired class of creditor votes by ballot, and then confirmation comes at a hearing, where the court decides whether to accept the plan. For a small business case, you are allowed to file a plan of reorganization on your own for 180 days, and only the debtor can file a plan. The court may allow you to have up to 300 days to file a plan, but only with proof that you’ll confirm it in a reasonable time. You’ve got to move quickly and with a lot of skill and preparation.

Avoiding the fees for a lawyer may not be worth it. A company that wants to hire an attorney will have to ask the court’s permission. And a lawyer will need to show what he was paid by disclosing it within 14 days after the case starts. Filing the petition is costly in a Chapter 11 case. You have to file it with a fee of $1,738.

While the law allows you to represent yourself, it doesn’t allow the corporation to represent itself. A business that has never been in bankruptcy court will face many challenges. There are also tough decisions about the best Chapter for the business and how to manage the case. If your company is interested in filing for bankruptcy, you should not try to do it on your own.