Takeover Triage

Securing Critical Accounting Records for a Trustee

The first 24 to 48 hours after the appointment of a Chapter 11 trustee to takeover operations of a business can be the most critical. With so many balls in the air at once, the importance of securing the debtor’s critical accounting records can often be overlooked.
It falls upon the trustee’s accountants to ensure that the debtor’s financial records are secured, inventoried, and to the extent possible, complete. Unfortunately, many debtors have sub-standard accounting practices, necessitating reconstruction of basic account records from source documents to help the Chapter 11 trustee fulfill his or her fiduciary obligations to report accurate and complete financial information. With that in mind, I have compiled a list of the “must have” hardcopy accounting records that should be secured as soon as possible after a Chapter 11 trustee’s appointment:

  1. Federal and state income tax returns
  2. Payroll tax returns
  3. Sales and usage tax returns
  4. Banking documents including statements, cancelled checks, wire transfers, and deposit slips
  5. Payroll registers and access to the debtor’s payroll service provider (if there is one)
  6. Employee files
  7. Copies of audited, reviewed or compiled financial statements
  8. Accounts receivable files
  9. Paid and unpaid vendor files and other accounts payable documents
  10. Corporate documents
  11. Contact information for the debtor’s tax accountant, auditor and bookkeeper (if not an employee)
  12. Contact information for the debtor’s information technology consultant (if not an employee)

In addition to the forgoing, many debtors keep additional accounting information on physical servers or a cloud server. Obtaining a copy of the debtor’s electronic accounting records, such as QuickBooks, is of utmost importance. Before employing password breaking software, trying to obtain administrative credentials to access this information whether locally or on a cloud is key; additionally, with cloud-based servers it is imperative to determine how the monthly fees are paid because if the account is not current, access to this information could be lost.
The bottom line is that in the case of securing accounting records, you want to err on the side of caution and obtain what you can while you can and as quickly as you can.