A significant number of companies that file for bankruptcy don’t disclose anything about their preparations for bankruptcy in public filings, according to the Wall Street Journal. While preparing for a bankruptcy filing seems to constitute the type of “material” information the Securities and Exchange Commission requires companies to disclose to investors, in fact regulations and court rulings don’t mandate that companies let investors know about bankruptcy preparations. Disclosing such preparations could make the situation worse for a stressed firm, especially a financial firm.
A Journal examination of the filings of 90 large publicly traded companies that filed for bankruptcy between 2007 and this April found that 29 didn’t disclose that they were making preparations to file for bankruptcy. Some of the companies, like Lehman and MF Global, fell apart quickly, the Journal notes, so that disclosure may not have been possible.