With the Corporate Transparency Act (CTA) introducing new reporting requirements for businesses starting January 1, 2024, bankruptcy trustees and legal professionals are left with an important question: Do these rules apply in bankruptcy cases? Specifically, are trustees required to file Beneficial Ownership Information (BOI) reports on behalf of debtor companies?
Under the CTA, certain business entities must report their Beneficial Owners—those who hold substantial control or at least 25% ownership of the company—and Company Applicants, who are responsible for submitting the company’s formation documents. Despite 23 exemptions to this requirement, the Act doesn’t explicitly address how bankruptcy courts, trustees, or bankruptcy estates should comply, creating significant uncertainty.
Fortunately, recent court cases have begun to clarify this issue, especially in relation to Chapter 7 bankruptcy.
Chapter 7 Bankruptcy and the CTA
As mandated by the CTA, “reporting companies” must disclose information about their Beneficial Owners and, in some cases, their Company Applicants. However, in bankruptcy, the question arises: Are trustees obligated to file a BOI report on behalf of the bankruptcy estate, similar to their duty to file tax returns?
This issue was first tackled in the case of *In re BOA Nutrition, Inc.* (No. 23-03665-5-PNW, Bankr. E.D.N.C.), where case administrators sought a ruling that they had no obligation to report BOI on behalf of the debtor. A similar motion was later filed in *In re YLG Partners, Inc.* (No. 23-10709, Bankr. M.D.N.C.), seeking the same determination.
Both cases centered on the argument that the CTA does not impose an obligation on trustees to report BOI on behalf of debtors. Instead, the duty to file the required BOI report remains with the debtors themselves, as trustees are not considered agents of the debtor and their responsibilities are defined by the newly formed bankruptcy estate under U.S. law.
These arguments led FinCEN to step in and provide clarification.
FinCEN’s Clarification
FinCEN ultimately clarified that Chapter 7 Trustees are generally not responsible for fulfilling a debtor company’s BOI reporting obligations. The responsibility for compliance with the CTA continues to lie with the debtor companies themselves.
However, FinCEN also highlighted rare circumstances where a trustee could be held liable for a debtor company’s failure to comply with CTA regulations. Specifically, liability could arise if a trustee:
1. Falsely assures a debtor company that they will file the BOI report but then willfully fails to do so.
2. Willfully prevents the debtor from filing the report on their own.
The Bottom Line
For bankruptcy trustees, this means you are mostly off the hook when it comes to BOI reporting, with only a few exceptional scenarios to be aware of. The responsibility for filing a BOI report remains with the debtor company.
Since the onus of BOI reporting lies with the debtor company, trustees can relax—though debtor companies may find it beneficial to hire an outside agent to ensure compliance. Our team at Fincenreporting.com is ready to help you navigate these requirements and ensure full compliance.