Chapter 11 Trustees & Bankruptcy Examiner

While it is rare in a Chapter 11 case, a party in interest or the United States Trustee can file a motion requesting that a Chapter 11 trustee or examiner be appointed in the case at any time before the confirmation of a reorganization plan. In a Chapter 11 proceeding, the debtor in possession usually serves as a fiduciary of the bankruptcy estate, with the rights and powers of a Chapter 11 trustee.

Appointment of a Chapter 11 Trustee

When a motion has been filed, and following notice and a hearing, the Bankruptcy Court may order a Chapter 11 trustee to be appointed for cause if it finds fraud, dishonesty, incompetence, or gross mismanagement. The court may also find that the trustee’s appointment is in the interests of creditors, equity security holders, or other interests of the estate. Additionally, the U.S. Trustee is required to move to appoint a trustee when there are reasonable grounds to believe any parties in control of the debtor participated in actual fraud, dishonesty, or criminal conduct while managing the debtor or in its financial reporting.

The Chapter 11 trustee is appointed by the U.S. Trustee after consulting with the parties in interest, and the appointment is subject to the court’s approval. A trustee may also be elected if a party in interest requests an election within 30 days of the court ordering the appointment of a trustee. If a trustee is elected, the U.S. Trustee will convene a meeting of creditors to choose an individual to serve as trustee.

If appointed, the case trustee is responsible for managing the property of the Chapter 11 bankruptcy estate, operating the debtor’s business, and, if appropriate, filing a reorganization plan. The trustee must file the reorganization plan as soon as it is practicable or submit a report explaining why one was not filed. The trustee can also recommend that the case be converted to one under another bankruptcy chapter or dismissed.

If requested by a party in interest or the U.S. Trustee, the Bankruptcy Court may terminate a trustee’s appointment and return the management of the bankruptcy estate to the debtor in possession at any time before the reorganization plan is confirmed.

The Role of an Examiner

The function of an examiner in a Chapter 11 case is usually more limited than that of a Chapter 11 case trustee. The examiner is authorized to perform the trustee’s investigatory functions and file a statement on the investigation results. However, the Bankruptcy Court may also order the examiner to carry out other duties of a trustee if the court orders that they are not being performed by the debtor in possession.

The Bankruptcy Court is allowed to determine the duties of an examiner. In some cases, an examiner may file a reorganization plan or assist the negotiating parties in developing a plan. The examiner may sometimes review schedules prepared by the debtor to determine whether any of the claims were miscategorized or are obligated. Occasionally the examiner is directed to determine whether objections to any proofs of claim should be filed or if causes of action have sufficient merit for additional legal action. The examiner is not permitted to serve as a Chapter 11 trustee in the case.

Thomas H. Curran Associates’s attorneys have significant experience representing various trustees and fiduciaries in bankruptcy proceedings throughout the Unites States and bring the necessary knowledge and experience required to obtain a successful outcome in the case.