3 Best Practices To Establish Command And Control Of Cash Flow For Chapter 11 Commercial Bankruptcies

By Tod McDonald

A trustee’s chapter 11 commercial bankruptcy case objectives are simple.

  • Ensure everyone associated with the case follows adheres to the laws established for federal bankruptcy court.
  • Maximize the return and payment to creditors and stakeholders.

To achieve these goals, one thing matters more than anything else, establish command and control of the operations cash flow.  These three steps provide every trustee with knowledge, information, and intelligence required to achieve case objectives.

  1. Assess the quality of accounting system data. Any trustee is professionally responsible to establish an independent, objective point of view on debtor financial statements.  Given the legal requirement for detailed, 3rd party validated transaction data, simply relying on audited financial statements is not acceptable.  In addition, debtor company accounting record control processes and data access lacks transparency.  Establishing a perspective on debtor accounting records is a crucial aspect of many professional judgements that will be required.
  2. Aggregate all banking activity. The only way to assess the quality of accounting system data with any amount of credibility is to compare it to banking activity which represents a set of 3rd party validated cash flow activity.  In any sizable case, that means aggregating transaction activity from many, often dozens of accounts and multiple institutions. Once all data is standardized, it can not only be used to compare to accounting system records but becomes an invaluable source of indisputable cash flow evidence.
  3. Establish a 13-week cash roll forward. Used for the baseline for all cash flow, it’s a critical view need for business planning, cash forecasting, vendor payment disposition reports, and creditor committee reporting.  It’s absolutely critical to use the highest quality data possible, relying on non 3rd party validated transactions from accounting systems that may or may not have proper management controls in place is risky as creditors, investors, and other stakeholders use the information to make critical decisions, many of which involve litigation.

VALID8 Financial provides a platform that accelerates establishing case intelligence which not only improves the quality of information for trustee decision making but reduces the time it takes to gather and analyze the data required to make the decisions.