FOR DISTRESSED companies, bankruptcy has always served as a refuge, a place where debtors and creditors could hash out a plan of reorganization while the rest of the world waited on the sidelines.

But today, bankruptcy and scandal seem to go hand in hand, and a declaration that a company is seeking Chapter 11 protection is no longer the white flag it used to be. In fact, it is more of a red flag, a signal that everyone, including regulators, should take a long hard look at the company’s books.