The following article was written by Kenneth R. Epstein and Nelly Almeida and originally published in the December 8, 2014 edition of the New York Law Journal. Kenneth Epstein is the Managing Director of the Insured Portfolio Management Special Situations Group at MBIA Insurance Corporation. A link to the journal can be found here.”
A successful restructuring depends, in part, on disclosure by a debtor of information pertaining to its finances and operations. This feature, however, is notably absent in most municipal bankruptcies. Chapter 9 of the Bankruptcy Code, available to municipalities seeking to reorganize their debts, imposes few statutory requirements on municipal debtors. Additionally, federal courts have been careful not to interfere with the affairs of a municipality due to the inherent constitutional limitations on courts’ powers. The absence of mandatory disclosures by municipal debtors often creates inefficiencies and increased costs during a bankruptcy process and should, therefore, be addressed. This article compares and contrasts Chapter 11 and Chapter 9 disclosure requirements and discusses a bankruptcy court’s ability to compel greater disclosure from municipal debtors under the current Chapter 9 framework.
A Comparison of Disclosure Requirements