Examining a company in bankruptcy;

              "The Congress shall have the Power to . . . establish . . .
uniform Laws on the subject of Bankruptcies throughout
the United States." — The Constitution of the United
States, Article I, Section 8.
During the past two years a number of bankruptcies
have received considerable publicity." Among the larger
recent bankruptcies were:
Grayson Robinson Stores, Inc.
American Dixie Shops, Inc.
Masters, Inc.
Davega Stores, Inc.
Dilbert Bros., Inc.
Dejay Stores, Inc.
Rek-o-Kut Company, Inc.
In almost all bankruptcy cases (usually excepting those
involving small companies with negligible estates), inde­pendent
accountants are appointed by the courts to
examine the affairs of the bankrupt companies. The exam­ination
of a company subject to the provisions of the
Bankruptcy Act varies in scope from the normal audit of
a client company. These variances and other factors
encountered in this type of examination necessitate a
report which is different from the usual audit report.
It is the purpose of this paper to discuss these differences
in scope and reporting.
The discussion will be confined to corporate bankrupt­cies,
under the national Bankruptcy Act. References to
the Bankruptcy Law are of a general nature to provide
the accountant with background information necessary
for an understanding of the problems involved in a bank­ruptcy
examination.
The United States Constitution gives Congress the
power to establish uniform, nationwide bankruptcy laws.
Congress has enacted several bankruptcy laws including
the Act of 1898, now in force, amended by the the Act of
1938. The essence of the Bankruptcy Act of 1898 is incor­porated
into Chapters I through VII of the Act of 1938.
The bankruptcy laws are designed to afford the debtor
some relief from his creditors, the relief varying from com­plete
discharge from all debts to a reduction and/or rear­rangement
of some debts. Bankruptcy, in its various forms,
is a privileged status under which the debtor attempts to
reorganize or liquidate his affairs while under the pro­tection
of the court. A feature common to bankruptcies
is the formation of a committee of creditors (Chapter XI
bankruptcies) and/or the appointment of a Trustee
(Chapter X or straight bankruptcies) to investigate the
affairs of the bankrupt and determine the best course of
action for the creditors as a group.
Types of Bankruptcy
The Act of 1938, also known as the Chandler Act,
encompasses three types of bankruptcy: liquidation or
Examining a Company
in Bankruptcy
14
by Edward A. Weinstein