Sunday, July 1, 2012

Bankruptcy Priorities:

Penalties



As a general rule bankruptcy almost immediately instills an automatic stay upon creditors from taking further enforcement or collection action against a debtor and in that light can be viewed as a protection; however, that protection can become detrimental if creditors deceivingly seek claims or priority of such claims that are greater than to which they are entitled.  Creditors often feast upon the bankruptcy buffet as a swarm of scavengers feast upon a carcass and use whatever method or manipulative effects to deceive and collect upon the recovery.

Bankruptcy proceedings provide for the reorganization, liquidation, collection and / or redistribution of funds, wealth and / or assets to the respective creditors in an order of priority.  As a result of this clear designation and availability of information, creditors seek to file their claims in the highest order of priority in which they are able or in which they can deceive.  While secured creditors obviously hold greater preference than unsecured creditors, and while priority claims hold greater weight than others, the amount in which can be claimed under the same priority often becomes muffled, confused, skewed, and manipulated with the intent to collect as much recovery as possible.  One common, often misinterpreted, example of this type of event is with the application of penalty claims within bankruptcy proceedings. 

Penalties are generally recognized in the following order of priority to claims filed:

Property of the estate shall be distributed—

(1)first, in payment of claims of the kind specified in, and in the order specified in,

(2)second, in payment of any allowed unsecured claim,

(3)third, in payment of any allowed unsecured claim proof of which is tardily filed

(4)fourth, in payment of any allowed claim, whether secured or unsecured, for any fine, penalty, or forfeiture, or for multiple, exemplary, or punitive damages, arising before the earlier of the order for relief or the appointment of a trustee, to the extent that such fine, penalty, forfeiture, or damages are not compensation for actual pecuniary loss suffered by the holder of such claim;

(5)fifth, in payment of interest at the legal rate from the date of the filing of the petition, on any claim paid under paragraph (1), (2), (3), or (4) of this subsection; and

(6)sixth, to the debtor.

As a result, penalty assessments that do not represent compensation for actual losses incurred by the creditor as a result of acts or alleged acts of commission or omission by the debtor, do not hold the same priority and such amounts for penalties must be held behind all other unsecured claims.  For example, if a creditor holds a valid claim consisting of priority claims such as for union contributions; however, also hold penalty claims as a result of debtor delinquencies from the same contributions, those penalties do not hold the same priority as the priority claim on the actual contributions and should only be released after satisfaction of all other secured and unsecured claims of all creditors.  Regardless of the means by which the creditor presents the claim or recognizes the penalty, provided the penalty does not provide for recovery for actual pecuniary compensation loss, the penalty claim must be separated from and recovered distinctly separate from all other unsecured claims and only in priority to interest accrued after the petition date.

Creditors must not be allowed to unfairly and inequitably seek priority to which they are not entitled and trustees and trustee representatives must be careful to interpret claims accordingly.

What are your thoughts, and experiences regarding this subject ?

Sunday, June 24, 2012

The Human Asset


          An asset by its definition, (regardless as to whether you find the term’s meaning through Webster, or FASB) is quite simplistic.  An asset is something of value, and / or of future value that offers revenue generation or the capacity to reduce an organization's current and / or long term obligations and responsibilities ( liabilities ).  For example an Asset of cash is a tangible item available to meet the short and long term obligations of the organization; while an Asset of Inventory or even Equipment (Fixed Asset) are items of future value in that they will generate revenue, generate cash and promote the organization to further meet its obligations.  Further, an Asset can also be an intangible item, meaning that it does not hold attributes of tangibility and are defined by their potential to generate future cash flows.  Assets are a critical building block for any organization and the basis of Asset analysis is perhaps one of the most fundamental core concepts of accounting.  Certain assets increase in value with the passage of time, such as through interest revenues generated upon cash balances, while some assets depreciate or reduce in value with the passage of time or usage, such as the depreciation of a capitalized asset.  Further, an asset can become impaired or in other words determined to be less in value than the value for which the same is stated.  The impairment of an asset can occur on both tangible and intangible items and can be reduced in value as the result of internal or external influences upon the organization or the asset specifically.  Assets for accounting purposes can be classified as short term, long term, tangible or intangible, indefinite life or definite life, and can exist as fixed assets, prepaid expenses, cash, inventory, etc. etc.   As an asset is such an apparent and integral basis for the development of an organization, its accounting policies and the accounting picture, it seems inconsistent or at least incomplete to omit the most valuable of a Company’s assets, its human resources, its workforce or its specialized, trained, and recruited and experienced workforce.  What or who is better to bring satisfaction of future obligations than the Human resources or Human Asset of an organization’s workforce. 

          Human Resources, consisting of a trained, specialized, educated and sophisticated or experienced staff are of tremendous value to and for any organization.  Not only do Human Resources hold a very real and tangible value to an organization, its value can be defined and objectively stated amongst many organizations.  So why aren’t human resources recorded as an asset or capitalized beyond the recognition or inclusion of direct labor costs in inventory, successful patent enforcement, or fixed asset training, software development or the like?  Further, the inclusion of labor costs merely increases the value of another asset and provides very little, if any, recognition to the value of Human Capital Resources.  I believe that Human resources need to become strategically, yet objectively capitalized as an asset to the value in which the human resources are developed internally or purchased, that is, the value of a trained, and experienced staff should become recognized on a balance sheet as an asset, categorized under a unique and newly formed tier or step.  It appears as though Tax agencies have already identified the value of a trained and educated workforce, yet the Financial Accounting Standards Board seem deferred to recognize the same (Pun intended).
          So as to promote discussion, to further delay my rambling, and to further deliberate and debate this often discussed topic, what are your thoughts on this same topic ?

Sunday, June 17, 2012


The Accounting Picture:



Monet, Picasso, Da Vinci, Ernst, Young, & moran:  We each share at least one common attribute in our lives and spirits: we are burdened with the divine inspiration and fiduciary responsibility to design, and control the rendering of a pictorial representation; yet with our own form of medium.  While Monet and Picasso may enjoy the likeness of oils and canvas and Da Vinci fashions more to sculpture, Ernst, Young and myself, Moran utilize the pencil, adding machine and General ledger to present a picture, a picture resulting in The Accounting Picture.  While Monet, Picasso and Da Vinci may have utilized greater creativity and have collaborated amongst other elements of inspiration not typical and even discouraged in the Accounting profession, as Accountants, we still are assigned with the dire responsibility to design a picture, an objective picture.

The Accounting Picture: Is my new blog to present, discuss and laterally communicate my vision, passion, desire and burden for the Accounting profession; to discuss current topics involving advanced accounting, auditing, taxation, regulation, business law as well as managerial accounting and operational inspirations. In doing so, my intent is to educate and to become educated, to teach through and from my experiences and interpretations as well as to learn from others’ experiences and to increase my diversified understanding from varying viewpoints.  I further intend to post discussions of my vision for future accounting standards, and debate interpretations, court decisions and legislative actions.   I have over 15 years in the Accounting profession and have experienced many unique, complex, rewarding and yes, creative forms of accounting presentations.  From these experiences which were built from a strong academic foundation, I will share and develop posts; yet again I welcome lateral journaling wherein I suggest that my readers also develop topics of interest relating to the profession, its standards or future developments.

So without further delay: I shall prepare posts and welcome ideas and comments.