Corporate Transparency Act: Are Bankruptcy Trustees and Court Appointed Receivers Obligated to File Beneficial Ownership Information Reports with FINCEN on Behalf of Debtor Entities?

By Mark Wisniewski* (Berger Singerman)

The Corporate Transparency Act (CTA) requires both domestic and foreign reporting companies¹ to disclose information about the company and its beneficial owners. Beneficial owners are defined as those persons who own 25% or more of the company (through equity, stock, convertible debt, etc.) or exert significant control over its governance and operations (e.g., C-suite officers and “important decision-makers”)—to the federal government. The CTA aims to combat money laundering, terrorist financing, corruption, tax fraud, and other illicit activities. Reporting companies formed or registered before January 1, 2024 must submit their initial Beneficial Ownership Information (BOI) report by January 1, 2025. The CTA is administered by Financial Crimes Enforcement Network, a bureau of the United States Department of the Treasury (FINCEN).

As previously noted in an article published earlier this year,² the important question of whether a bankruptcy trustee in a federal bankruptcy case has the obligation under the CTA to prepare and file a BOI report with FINCEN for and on behalf of the debtor entity subject to the bankruptcy proceeding was resolved in two separate bankruptcy cases in which FINCEN issued a determination finding that the bankruptcy trustee generally has no such obligation.³ The authors of that article previously published noted in passing that FinCEN’s rationale for issuing those exculpatory determinations in favor of bankruptcy trustees might also be applicable to court appointed receivers.”⁴

The purpose of this article is to pick up that thread and attempt to develop an argument that FINCEN’s treatment of court appointed receivers in this context should be informed by the resolution of the bankruptcy trustee question because courts routinely look to bankruptcy law and apply bankruptcy law principles to resolve issues raised in a receivership proceeding, especially where – as here – there is a dearth of receivership-specific governing legal authority.⁵ A brief discussion follows.

Bankruptcy Trustee.

To recap, in both In re BOA Nutrition, Inc. and In re YLG Partners, Inc., No. 23-10709 (Bankr. M.D.N.C.), FINCEN determined that the applicable bankruptcy trustee does not have a duty to report the beneficial ownership information of the debtor entity to FINCEN under the CTA, and in both of those bankruptcy cases the manner in which the bankruptcy court obtained those determinations was substantially similar from a procedural perspective. For example, in the In re BOA Nutrition, Inc. bankruptcy case, a Bankruptcy Administrator filed a motion requesting that the bankruptcy court issue an order determining that John C. Bircher, III, the chapter 7 trustee (Trustee) had no obligation under the CTA to prepare and file a BOI report with the FINCEN for and on behalf of the debtor in the Chapter 7 case. All relevant parties conceded that the Chapter 7 debtor, as the corporate entity, is a “reporting company” under the CTA. However, the conceptual centerpiece of the motion was that the Trustee is a representative of the bankruptcy estate, and as such should not be required under the CTA to comply with the BOI reporting requirements for and on behalf of the Chapter 7 debtor. The bankruptcy court then issued an Order directing the United States Department of the Treasury to respond to the motion.

In response to the Court’s Order, FINCEN replied that it did not oppose the request for a determination that the Trustee does not have a duty to report the Chapter 7 debtor’s beneficial ownership information to FINCEN. In its response, FINCEN concluded that the obligation to report beneficial ownership information to FINCEN under the CTA lies with reporting companies themselves, and that a bankruptcy estate is not a “reporting company” obligated to file beneficial ownership information with FINCEN. In reaching its conclusion, FINCEN emphasized that a trustee of a bankruptcy estate should generally not have exposure to applicable penalties for violating the CTA even if the debtor-reporting company does not timely submit a BOI report because the mere fact of becoming a trustee of a bankruptcy estate does not transform such person into a “senior officer” of the reporting company within the meaning of the CTA.⁶

Finally, FINCEN proclaimed its intent to add language consistent with its response to the bankruptcy court’s directive to its detailed FAQ document offering official guidance on the CTA (FINCEN FAQ) which should provide official cover for bankruptcy trustees generally.

Receiver.

The question of whether a receiver appointed by a state or federal court in a receivership proceeding has an obligation under the CTA to prepare and file a BOI report with FINCEN for and on behalf of the debtor entity subject to the receivership proceeding remains open. However, as a result of the complete absence of any FINCEN published guidance or decisional authorities apposite to this question, FINCEN should look to bankruptcy law as the touchstone to address this issue.⁷

Accordingly, and by application of those same bankruptcy law principles employed by FINCEN in resolving the bankruptcy trustee question posed to it by the In re BOA Nutrition, Inc. and In re YLG Partners, Inc. courts, FINCEN should find that a receiver appointed by a state or federal court in a receivership proceeding has no obligation under the CTA to prepare and file a BOI report with FINCEN for and on behalf of the corporate entity subject of a receivership proceeding because a receivership estate – just like a bankruptcy estate – is not a “reporting company” obligated to file beneficial ownership information with FinCEN.

Consistent with that logic, a receiver of a receivership estate should generally not have exposure to applicable penalties for violating the CTA even if the “reporting company” subject to the receivership estate does not timely submit a BOI report because the mere fact of becoming a receiver of a receivership estate does not transform such person into a “senior officer” of the reporting company under the CTA.

Hopefully in the near future the FINCEN FAQ will expressly incorporate both of these outcomes.

*Mark Wisniewski is a Partner in the tax department of Berger Singerman LLP and a member of the firm’s Corporate Transparency Act Task Force. The author thanks his colleagues Paul Avron and Ilyse Homer, each a Partner in in the firm’s bankruptcy department, for their helpful comments on prior drafts of this Article. The views expressed herein are those of the author and not necessarily those of the firm.

See 31 U.S.C. § 5336(a)(11)(A) (“reporting company” “means a corporation, limited liability company, or other similar entity that is—(i) created by the filing of a document with a Secretary of State or a similar office under the law of a State or Indian Tribe or (ii) formed under the law of a foreign country and registered to do business in the United States by the filing of a document with a Secretary of State or a similar office under the laws of a State or Indian Tribe … .”). ↩︎
See FinCEN provides Corporate Transparency Act reporting guidelines for bankruptcy but uncertainty remains | Reuters ↩︎
See In re BOA Nutrition, Inc., No. 23-03665-5-PWM (Bankr. E.D.N.C.) and In re YLG Partners, Inc., No. 23-10709 (Bankr. M.D.N.C.). ↩︎
See FinCEN provides Corporate Transparency Act reporting guidelines for bankruptcy but uncertainty remains | Reuters. ↩︎
See footnote 7 infra. ↩︎
Under the CTA, a “senior officer” is defined as “any individual holding the position or exercising the authority of a president, chief financial officer, general counsel, chief executive officer, chief operating officer, or any other officer, regardless of official title, who performs a similar function,” See 31 CFR 1010.380(f)(8), and such an individual is generally the party responsible for preparing and filing the BOI report for and on behalf of the applicable reporting company. ↩︎
Numerous courts have looked to bankruptcy law to aid in addressing issues raised in the receivership context. See, e.g., Marion v. TDI Inc., 591 F.3d 137, 148 (3d Cir. 2010) (analyzing bankruptcy law in a receivership context); Fidelity Bank, Nat’l Ass’n v. M.M. Grp., Inc., 77 F.3d 880, 882 (6th Cir. 1996) (finding it “appropriate and helpful to refer to the rules governing appellate standing in bankruptcy proceedings” when no case law existed regarding the rules in a receivership action); Unisys Fin. Corp. v. Resolution Trust Corp., 979 F.2d 609, 611 (7th Cir. 1992) (Judge Posner reasoning that bankruptcy law is “parallel” and “instructive” in the receivership context); FDIC v. O’Melveny & Myers (9th Cir. 1992) 969 F.2d 744, 751, rev’d on other grounds, O’Melveny & Myers v. FDIC, 512 U.S. 79, 114 S.Ct. 2048, 129 L.Ed.2d 67 (1994), reaff’d on remand, FDIC v. O’Melveny & Myers, 61 F.3d 17 (9th Cir.1995) (“[A] receiver, like a bankruptcy trustee and unlike a normal successor in interest, does not voluntarily step into the shoes of the [entity in receivership or bankruptcy]; it is thrust into those shoes. It was neither a party to the original inequitable conduct nor is it in a position to take action prior to assuming the [entity in receivership or bankruptcy’s] assets to cure any associated defects….”). ↩︎