Chapter 10 Trustees, Examiners & Creditors Committees

Trustees §§ pertain to who may be a trustee, how a trustee qualifies and how to remove a trustee § 321 states that a competent individual who has an office or resides in the district or in an adjacent district where the proceeding is pending may be a trustee in a Chapter 7, 12 or 13 proceeding A “competent individual” is normally a disinterested person who has not previously served as examiner in the proceeding A corporation that is authorized by its charter or bylaws and has an office in the district, may also serve as trustee The US Trustee in the judicial district may also serve as trustee, if necessary

To be Appoint as Trustee First, the trustee must qualify to act as “trustee” “Private panel trustees” need to take no action if the court or US Trustee has authorized a blanket bond that the trustee has previously obtained A “nonpanel trustee” or a trustee serving in a district that has not authorized a blanket bond for trustees will be required to post a bond with the court (within 5 days of appointment) in each case that the trustee has been appointed

Amount of Bond Amount is determined by the US Trustee Amount is Generally based on a % of the estimated value of the assets subject to administration The amount of a blanket bond is generally based on a % the value of all funds on deposit by a panel trustee in all cases subject to the blanket bond Local Rule may require a bond of over 100% for maximum protection Local rule may also require a trustee to file a require a trustee to file a quarterly report of funds on deposit with the court or US Trustee The trustee is the legal representative of the estate and may sue as a plaintiff or be sued as a defendant on behalf of the estate

Removal of Trustee and Appointment of Successor Trustee Covered in §§ 324 & 325 A trustee may always be removed for cause Removal requires motion before the court If a trustee dies or resigns, a successor will be appointed A trustee will always be appointed in Chapter 7, 12 & 13 proceedings A trustee may be appointed in Chapter 11 The US Trustee will not generally perform the duties of an individual trustee in a specific proceeding unless necessary, required or has been directed by the court

The US Trustee Operates nationally since 1986 as a division of the Depart. of Justice Function is primarily administrative Prior to 1974 bankruptcy judges (known at the time as “referees”) performed many of the administrative functions of the US Trustee – this conflicted with their function as a judge

The US Trustee – Monitors Progress  The US Trustee monitors progress of all proceedings and is required to act appropriately to “prevent undue delay”  They should be served with all notices described in Chapter 5 of your book  They are required to act to ensure that a debtor pays all fees and files all required documents in connection with all proceedings  The monitor application for the retention of professionals and applications for professional compensation and are permitted to comment thereon to the court  The local US Trustee may have published guidelines

US Trustee & Chapter 7  In Chapter 7 proceedings they maintain and supervise a panel of trustee  This includes appointing private panel Chapter 7 trustees, and supervising and monitoring a private trustee’s prompt administration of asset estates

US Trustee – 2005 New Duties  § 704(b ) requires the US Trustee to review the debtor’s material filed pursuant to § 521 and to file a statement within 10 days of the meeting of creditors indication whether or not the filing creates a presumed abuse of Chapter 7  If abuse is presumed, then within 30 days of the meeting of creditors the US Trustee must file a motion to dismiss or convert, or a statement setting forth the reasons why no motion is to be filed if abuse if presumed

US Trustee – 2005 New Duties, Continued…  §603 requires random audits of one of 250 cases  28 USC § 586(f) directs the trustee to retain auditors and to file the audit reports with the Court

US Trustee & Chapter 11  They are directed to appoint and monitor Chapter 11 Creditor Committees  Also required to monitor Chapter 11 reorganization plans and disclosure statements and are permitted to comment upon them – this is also granted to them with Chapter 12 & 13

US Trustee & Chapter 11 Involvement  First they will generally conduct an initial conference with the estate’s representatives approximately 2 weeks after filing – overview of case and instruct counsel  Second, the will preside at the meeting of the creditors  Third, they will collect quarterly fees from a debtor-in-possess (Ch.24 of book)  Finally, the may bring motions to dismiss or convert Chapter 11 proceedings pursuant to 11 USC 586(a)(8) (ch. 23 of book)

The Trustee’s Essential Duties  Investigate – determine whether there are assets in an estate that can be liquidated  Liquidate- involves the trustee converting nonexempt assets into cash  Litigate – a trustee may persue claims against third parties that would exist even if there had been no bankruptcy – i.e., collecting accounts  Administrate – the assets that have been reduced cash by liquidation or litigation

Debtor in Possession  If there is no active trustee in a Chapter 11, the debtor functions as a “debtor in possession” and acts as its own trustee  Debtor in possession essentially has the same rights and duties as a trustee to investigate, liquidate, litigate and administrate

Official Creditors Committees  If the creditors don’t want the debtor acting as a trustee, they have the opportunity to seek appointment of a trustee or examiner, the Official Creditors Committee, and the US Trustee  Official Creditors Committee are the initial monitors of the debtor in possession’s Chapter 11 financial affairs  The major purpose of the committee is to unite unsecured creditors so that they can deal with the debtor in possession collectively  The are appointed by the US Trustee from among the 20 largest unsecured creditors of a debtor in possession – from the list the US Trustee will solicit creditors to serve  They are considered a party interest and may file pleadings, motions or plans of reorganization

3 Grounds for Appointment of Trustee or Examiner in Chapter 11 Proceeding  For Cause – including fraud, dishonesty, incompetence or gross mismanagement  If the appointment is found to be in the vest interest of the creditors – they may have grounds for cause but insufficient proof  If grounds exist to dismiss or convert the case from a Chapter 11, the court may instead appoint a trustee in the best interests of the creditors

Examiner  An “Examiner” is an independent third party who is usually given specific instructions by the court to investigate certain aspects of a debtor’s financial affairs  They may be required to investigate all matters or a limited aspect of the debtor’s financial affairs  An examiner’s report may support the debtor or it may recommend the appointment of a trustee or conversion of the proceeding to a Chapter 7

Ombudsmen (Added in 2005) May be Appointed in 2 Situations  Where the asset sale (see Ch 18) involves the sale of personally identifiable information (such as a customer list) – the ombudsman will review the seller’s privacy policy and report on the potential losses to gains to consumers and the estate by the proposed sale  In a health care business bankruptcy, the court shall order an ombudsman to represent the interests of the patients where necessary and to regularly report to the court on the quality of patient care