Form 425C Exhibits E F: Preventing Payable and Receivable Omissions

Why Exhibits E and F Trigger UST Objections in Subchapter V Cases

Form 425C Exhibit E and Exhibit F are the financial schedules on the Monthly Operating Report for Small Business Under Chapter 11 that require debtors to itemize all post-petition debts incurred and all accounts receivable acquired since the petition date. The United States Trustee reviews these two exhibits to assess whether the debtor's cash flow projections and 13-week forecast remain feasible throughout the case.

When payables or receivables are omitted, the UST cannot verify the debtor's liquidity position, which directly undermines the feasibility analysis required for plan confirmation under 11 U.S.C. section 1190.¹ Omitted payables and receivables on Exhibits E and F constitute inaccurate disclosures that can trigger UST objections and jeopardize plan confirmation.

These objections arise not from intentional concealment but from the compressed timeline between month-end and the 21-day filing deadline under 11 U.S.C. section 1187(1).² Attorneys preparing these reports often lack real-time access to the debtor's accounting system, relying instead on incomplete data pulls.

Consider a hypothetical Sub V debtor with $2.5 million in annual revenue that closes its books on the fifth business day of the following month. If the debtor's controller omits, for example, $45,000 in accrued but unbilled receivables from Exhibit F, the UST sees a cash shortfall that does not actually exist. The objection letter arrives within 14 days, and the debtor must file an amended MOR or face a motion to convert or dismiss.

What Form 425C Exhibits E and F Actually Require

Exhibit E requires listing all debts incurred since the petition date that remain unpaid, including post-petition trade payables and tax obligations.³ The form must be completed only for the period covered by the report, with all questions answered for that specific reporting period.² This means each monthly filing is a standalone snapshot, not a cumulative roll-forward.

Exhibit F requires itemizing all accounts receivable acquired post-petition and any payments received on pre-petition receivables since filing.⁴ The critical distinction is that pre-petition receivables collected post-petition must appear on Exhibit F, while pre-petition receivables still outstanding do not.

A blank line on Exhibit E or F is treated as a zero balance, which creates a discrepancy if the debtor's bank statements show subsequent payments to vendors not listed.

How Payable Omissions Derail Plan Feasibility

Payable omissions on Exhibit E directly undermine the debtor's ability to confirm a plan under 11 U.S.C. section 1190, which requires the court to find that the debtor is reasonably likely to make payments under the plan.¹ If the UST cannot trust the payable schedule, it cannot assess whether the debtor's projected disposable income is sufficient.

The most frequently omitted payables fall into three categories. First, accrued but unpaid professional fees — attorneys, accountants, and financial advisors who bill monthly but are paid on retainer. Second, post-petition tax obligations, including payroll taxes withheld but not yet remitted to the IRS. Third, trade payables for goods received in the last week of the reporting period where the invoice has not yet been entered into the debtor's AP system.

For a typical Sub V debtor with $4 million in annual revenue, these three categories alone can total $80,000 to $120,000 per month. Omitting even one category creates a gap that the UST will flag as an inconsistency between Exhibit E and the debtor's cash disbursement records.

Receivable Omissions That Trigger UST Objections

Receivable omissions on Exhibit F are equally damaging but arise from a different root cause: timing mismatches between revenue recognition and cash collection. The form requires listing receivables acquired post-petition, which means the debtor must identify which AR was earned after the petition date versus AR that existed pre-petition.

The most common error involves accrued but unbilled receivables. A Sub V debtor that completes work on the last day of the month but does not invoice until the following week has a receivable that should appear on Exhibit F for the month the work was performed. If the debtor's accounting system records revenue on the invoice date rather than the service date, this receivable is omitted.

Another frequent omission involves payments received on pre-petition receivables. Suppose a debtor had $200,000 in pre-petition AR at filing and collects, for example, $35,000 of that amount during the reporting period. That $35,000 must appear on Exhibit F as a collection on pre-petition receivables. Attorneys who do not reconcile against the petition-date AR aging schedule will miss this entirely.

The 13-Week Cash Flow Link to Exhibit E Accuracy

The UST uses Exhibit E payables to validate the debtor's 13-week cash flow forecast. If the forecast assumes, for example, $150,000 in vendor payments in week three but Exhibit E shows only $60,000 in outstanding trade payables, the UST will question whether the forecast is realistic or whether payables have been omitted.

This linkage is why the UST reviews Exhibits E and F together with the cash flow projection required by the Subchapter V case management procedures. A debtor that projects, for example, $500,000 in revenue over 13 weeks but shows only $200,000 in post-petition AR on Exhibit F has a structural inconsistency that will trigger a request for amended schedules.

For a hypothetical retailer with $3 million in annual revenue filing Subchapter V, the 13-week forecast might show $75,000 per week in collections. If Exhibit F for the first reporting period shows only $30,000 in post-petition AR — for example, roughly two weeks of collections — the UST will ask whether the debtor has properly identified all receivables or whether the revenue projection is inflated.

Reconciling MOR Data Against Exhibit F Filings

The reconciliation process requires comparing three data sets: the debtor's bank statements, the accounts receivable aging report, and the Exhibit F filed with the MOR. Any payment received during the reporting period that appears on the bank statement but not on Exhibit F is a red flag.

The practical workflow involves running the AR aging as of the petition date and again as of each month-end. The difference between the two — adjusted for new invoices and credit memos — should equal the collections reported on Exhibit F. If the numbers do not tie, the attorney must investigate whether the debtor collected pre-petition AR that was not captured.

A common reconciliation error involves credit card settlements. For example, a debtor may process $25,000 in credit card sales during the last week of the month, but the funds do not settle until the following month. The receivable exists at month-end and must appear on Exhibit F, even though the cash has not yet arrived.

Common Classification Errors in Sub V Exhibit Reporting

Classification errors occur when debtors or their counsel place items on the wrong exhibit or mischaracterize the nature of a payable or receivable. The most frequent errors involve professional fees, intercompany transactions, and prepaid expenses.

Professional fees incurred post-petition but paid from a pre-petition retainer should appear on Exhibit E as a post-petition payable. Some debtors incorrectly exclude these fees on the theory that the retainer covers them, but the form requires listing all debts incurred since the petition date that remain unpaid, regardless of whether a retainer exists.

Intercompany payables between a debtor and its non-debtor affiliates present another classification challenge. If the debtor owes, for example, $50,000 to an affiliate for shared services provided post-petition, that amount belongs on Exhibit E. Attorneys sometimes omit these payables because they view them as internal transfers rather than third-party obligations.

Pre-Filing Checklist to Catch Omissions Before Confirmation

Before filing each monthly MOR, the attorney or financial professional should run through this checklist to catch payable and receivable omissions before the UST does.

First, compare the Exhibit E total to the debtor's AP aging report as of month-end. Any vendor with an outstanding balance on the aging that does not appear on Exhibit E must be investigated. Second, compare the Exhibit F total to the debtor's AR aging report, specifically identifying receivables created during the reporting period. Third, reconcile bank deposits against Exhibit F collections to ensure all cash received is accounted for.

Fourth, review the prior month's Exhibit E and identify any payables that were listed as unpaid but have since been paid. If the debtor paid a vendor a substantial amount during the current month — for example, $30,000 — but that vendor does not appear on the current Exhibit E, confirm that the payment was for a prior-period payable and not a new obligation.

Sixth, verify that any professional fee invoices received during the reporting period are listed on Exhibit E, regardless of whether they have been approved for payment. Seventh, check that credit card receivables earned during the period are included on Exhibit F, even if settlement occurs in the following month.

Your Next Step

Review your most recent Subchapter V case filing and compare the Exhibit E payable total against the debtor's AP aging as of the same month-end. If the numbers do not match within a reasonable tolerance, the omission is likely present in other months as well. Run the same comparison for Exhibit F against the debtor's AR aging and bank deposit records.

For cases where the reconciliation reveals gaps, consider engaging a financial professional to reconstruct the accurate schedules before the UST issues a deficiency notice. For questions on Form 425C preparation or Subchapter V financial reporting, contact [email protected].