Bankruptcy Indiana

CFO.com is concerned about companies whose auditors doubt their ability to continue as "going concerns" A going concern is a company that's making money, running its operations, keeping up with its payroll, paying its suppliers on time, and meeting its obligations to creditors.

As auditors issue their reports after examining the finances of a company, they write an opinion.  A growing number of companies are getting a bad report card, called a "going concern opinion". If a company, in fact, cannot continue as a going concern, it "goes" to the U.S. bankruptcy court for relief.

The most well-known going concern opinion right now was delivered to General Motors, but there are plenty of other companies in the same boat, including Indiana's own Conseco, Sunrise Senior Living, and Lear, with a lot more probably to come before 2009 is out.

Although, in my own Indiana bankruptcy law practice over the past twenty-plus years, I've been involved with individuals and small businesses rather than with giant corporations and going concern opinions, I am very concerned about this matter.  Here's why: When a corporation is given a going concern report by its outside auditors, that information doesn't remain a secret.  Lenders may begin to call in loans, investors may sell out of the stock, and suppliers may ask for more money up front. In other words, the report itself makes things worse! 

At that stage, layoffs are more likely.  Extra 401K contributions are not made by the company.  The value of workers' retirement accounts goes down because the company stock price is falling.  Now the "little guys" with whom I deal are being very severely affected.  Layoffs often mean loss of health insurance, as I brought out in my earlier blog, "Is There A Doctor In The House For Bankruptcy?".

Dandodiary.com website points to another aspect of the domino effect caused by going concern opinion reports.  When corporations file bankruptcy, there are likely to be claims filed against that company's directors and officers.  That in turn affects the insurance companies that sold the Directors and Officers' insurance policies.  Sooner or later, that financial pressure on the insurance companies trickles down to the small policyholders of that insurance company.

Going concern opinions are of concern to all of us!