A New Bankruptcy Law
The new law, enacted on April 20, is supposed to make it harder for individuals to file for bankruptcy protection from their creditors, but it also makes extensive changes in the bankruptcy rules affecting companies. Among other things, it would require any company trying to reorganize in bankruptcy to file a thorough disclosure statement discussing the effects of any reorganization plan on creditors before creditors can be asked to vote on the plan. The statement must include a discussion about the potential tax effects of the plan on both the company and a composite creditor.
“Although it might seem a given that adequate disclosure of tax risks must be provided, my experience is that the tax disclosures are often generic and not tailored in a meaningful way to the particular case, often because of concerns about creating an audit trail,” said Richard M. Leder, a Chadbourne tax partner in the New York office. He said the new standards may lead to interesting disclosure questions about grey issues.