Article

Jorge Gallardo-García

Forecasting liability is a pivotal component of bankruptcy proceedings and financial reporting (when forecasting tort system expenses). However, recent bankruptcy cases have demonstrated that liability forecasts are not interchangeable between these two contexts. For example, in In re: Garlock Sealing Technologies LLC, the forecasted liability in the bankruptcy court was only a fraction of the financial reporting forecast.

In “Using Liability Forecasts in Financial Reports vs. Bankruptcy,” Jorge Gallardo-García breaks down the situation-dependent nuances of these forecasts. In financial reporting, liability forecasting is shorter-term, is updated based on new developments, and can factor in expenses outside the legal liability (e.g., costs from defending claims within the tort system, making settlements because of frictions in the tort system). In bankruptcy court, forecasting is longer-term and more comprehensive, may focus on costs related to legal liability, cannot be refined after-the-fact, and may require unique considerations for creating and funding a trust.

Dr. Gallardo-García advises attorneys to consider the necessary context when evaluating their expert’s forecasts. He also suggests examples of what counsel should ask and check for as they review. Finally, he reflects that “though ultimately the answer to the question posed by the court may just be a dollar figure, knowing the how and why of that figure may be just as important to show courts and decision-makers that the answer is reliable.”