Legal English: “Disclosure Statement”

A “disclosure statement” (Pronunication:dihs-KLOH-zhur STAYT-mehnt; Origin: English) is a document setting forth the terms of an agreement (or other arrangement) in language that is perhaps more understandable than that found in an operative legal document. Disclosure statements are used in lending and in other contexts.

Most commonly, however, a disclosure statement is the formal document created in a Chapter 11 bankruptcy to allow creditors to more easily assess a proposed plan of reorganization.

Here are some example sentences that use the phrase:

  • “The debtor’s disclosure statement is incoherent, disorganized, and doesn’t contain half of the legally-required items. No vote on the plan of reorganization is appropriate until a proper disclosure statement is issued.”
  • “We want this case to be resolved as quickly as possible so that there is a minimum of disruption to the debtor’s business. Accordingly, we’ll be filing a disclosure statement and plan of reorganization along with our first day pleadings.”
  • “Did you see the disclosure statement that was just filed? I don’t know if I understand what’s happening with general unsecured creditors. Can the debtor really pay us 5 cents on the dollar and get away with it?”

A disclosure statement is, in many cases, a voluminous document. It describes not just the terms of the plan of reorganization, but also the debtor’s history, reasons for filing a bankruptcy petition, the debtor’s assets and liabilities, the tax consequences of the plan, procedural matters, plan feasibility, comparison with liquidation, and more.

Because the goal of a disclosure statement, as required by law, is to provide the creditors and other parties in interest with sufficient information to enable them to make an appropriate decision with respect to the plan of reorganization, debtors generally err on the side of including more information in the document, rather than less. After filing, the disclosure statement is subject to court approval before the case can move on to plan procedures.