Open Case, Open Book: The Importance of Transparency with Stakeholders in Chapter 11

A core principle of chapter 11 is maintaining a high degree of disclosure with the bankruptcy court throughout the process, including requirements to publicly file financial statements, creditor information, and a detailed reorganization plan. Additionally, a company’s goal during chapter 11 is to emerge stronger with a new beginning. By adhering to the bankruptcy court’s disclosure requirements, a company maintains integrity throughout the process, provides transparency to its stakeholders, and increases the likelihood of a favorable outcome when it emerges from chapter 11.  

Transparency during chapter 11 [link to a c street chapter 11 case study] is not just a legal obligation—it’s also a strategic tool to strengthen relationships with your stakeholders, and companies going through a restructuring process should strive for an even greater level of openness in communication than the bankruptcy court requires.  

The Stigma Around Bankruptcy

There is often a negative association with the word “bankruptcy,” and even more so for stakeholders who do not have past experience with chapter 11, which can impact their engagement with your brand. Particularly if the process involves a change in ownership [link to case study on ownership change] or operational shifts, your approach to explaining these changes can make or break relationships and impact business outcomes beyond the emergence from chapter 11. How you communicate with your stakeholders, and specifically your level of transparency, is critical in maintaining trust during and after a chapter 11 process.   

Below we explore suggested best practices for transparency in chapter 11 and how it can help your relationships with stakeholders through the process.  

Speaking Directly to Key Stakeholders 

Throughout the chapter 11 process, the bankruptcy court sends notices to customers, vendors, employees, and other parties in interest informing them of key developments or milestones in the case. These notices are often standardized and full of legal jargon, lacking the human voice and empathy that stakeholders warrant during uncertain times. Direct communication beyond these notices serves as a relationship-building tool by humanizing the process, fostering trust, and ensuring stakeholders have the information they need. Whether you are providing a call or email, or discussing the news at an all-hands meeting, your message should be as tailored as possible to each stakeholder’s unique concerns and priorities.  

In addition to more standard communications channels, it’s also important to consider outside-the-box strategies to control the narrative during what could be a difficult news cycle. Leveraging tools like social media or an executive speaking on video can help humanize the message, show attentiveness to stakeholders, and convey optimism about the process and the future. Particularly for large public companies, these strategies are not without risks including negative public comments and content distribution, but by using transparency and striking the right tone, organizations can solidify the support of key stakeholders through unorthodox channels during the chapter 11 process. 

Providing Clarity About What Chapter 11 Means

Misconceptions abound when it comes to chapter 11, primarily the idea that it means a business is shutting down. This can lead to panic among stakeholders: employees may wonder if they will still have a job, vendors may worry about receiving payments, and customers may choose to take their business elsewhere.  

Communicating tailored messaging directly to each stakeholder and addressing their specific needs and concerns can reassure employees, customers, and partners that chapter 11 is an opportunity for a company to get back on track [link to c street’s The Comeback Playbook], often with the special protections afforded to companies in chapter 11 that allow them to receive liquidity, resolve ongoing legal issues, and continue operations. Clear and focused communication reminds key parties that the company is not on life support but instead building a financial and organizational foundation for growth.  

Maintaining Employee Morale Throughout The Process

Like other company changes such as senior leadership transitions [link to Lily’s piece], chapter 11 may cause employees to question the stability and future direction of an organization. People will wonder how long they will still have a job, and, if their position remains unchanged, if they will have the resources they need to continue executing their responsibilities. Getting ahead of misunderstandings and proactively addressing top concerns related to job security and continuity of operations plays a vital role in maintaining employee morale during the restructuring process. Even if you cannot guarantee positive outcomes for all of your workforce, employees will want to be provided updates on the process at all times and have a point of contact that can clearly address questions and concerns.  

Preserving Customer and Vendor Relationships  

Similarly, chapter 11 often means turbulence for a company’s clients and key partners. Companies may be working with fewer staff, suffering supply chain delays, or unable to make certain vendor payments during the bankruptcy process. That said, chapter 11 can be an opportunity to strengthen relationships by staying close to your key partners and providing clear communications through your correspondence.  

Exhibiting transparency about things like payment timelines, contract adjustments, or supply chain needs, demonstrates that a company is acting in good faith and remains committed to keeping its customers and partners informed about its progress through the restructuring process. Providing unambiguous and regular updates will facilitate collaborative relationships by setting clear expectations, reducing panic and misinformation, and clarifying next steps. Transparency during chapter 11 often allows a company to emerge with stronger customer and vendor relationships, as these stakeholders appreciate the integrity shown throughout the process. 

The Value of Transparency in Chapter 11 Cases

Ensuring key stakeholders are informed and reassured is not just courtesy—it can lead directly to positive business outcomes if executed properly. Transparency in chapter 11 cases is invaluable because it builds trust, mitigates uncertainty, and fosters cooperation among stakeholders, all of which contribute to a successful reorganization and emergence [link to c street emergence case study- we work/NCM?]. By reaching stakeholders directly, clearly explaining the chapter 11 process, and controlling the narrative [link to media management c street page], a company significantly enhances its chance of emerging from bankruptcy with its reputation intact and stakeholder trust preserved.