Chapter 2 Understanding the Debtor's Treasury-Management System

• Jurisdiction: United States

Chapter 2 Understanding the Debtor's Treasury-Management System

How companies manage their cash can minimize costs and maximize value, but can also be complicated. A larger multi-corporate enterprise might have an entire cash-management or treasury-management system, which may exist within a number of financial institutions. It is critical to understand the structure of the system and how it works in order to prepare for a bankruptcy reorganization filing and minimize operational disruption. Only then can operational and legal issues be spotted and appropriate steps taken to operate the existing system legally within confines of the Bankruptcy Code. The debtor can then request the right relief from the court concerning the continued use of the system.

A. Analyzing the Debtor's Treasury-Management System

The following areas of inquiry are key to gaining an understanding of the debtor's treasury-management system:

1. Understanding the legal structure of the business enterprise. Identify the companies in the enterprise, determine how the various entities are related (i.e., which companies have ownership interests in other companies), and identify who is, and who is not, (going to be) in bankruptcy. It is also helpful to have the companies' organizational chart, if one exists, along with a list of authorized officers for each organization.
2. Learning how the entities function together on a business level. Learn how the business enterprise works and operates. Are any operational functions centralized in a management company? Are any of the entities holding companies? What, generally, does each entity own and do? Which companies have employees? Which companies own assets or have creditors? Which companies have operations?
3. Understanding how the cash-management system works. Gather information about the treasury-management system used by the enterprise. Identify which entities have bank accounts, where the accounts are located, what types of accounts they are, and how the accounts work together. If any of the accounts are pledged, obtain copies of any deposit account control agreements and pledge agreements. Consider what cash-management products are attached to the accounts (e.g., ACH, sweep, lockbox, etc.) to determine what will need to be re-established post-petition. Diagramming the treasury-management system may be helpful.
4. Walking through the flow of funds, identifying potential issues in a bankruptcy context, and identifying whether any nondebtor funds flow through accounts titled in a debtor's name.

a. Start with the accounts that the entity uses to make payments (both payroll and operating accounts), then work backward. Where do the funds in the account come from? If there is an interruption in services or cash flow, what disruptions

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