On April 23, 2024, the American Bankruptcy Institute’s Subchapter V Task Force issued its Final Report.

This article is the third in a series summarizing and condensing the Task Force’s Final Report into “a nutshell.” The subject in this article is:

• whether debtor’s attorney can be compensated for services performed after removal of debtor from possession. [Fn. 1]

Task Force Proposal

Pursuant to Section 341 of Title 11 of the U.S. Code (the Bankruptcy Code), the U.S. Trustee is required to convene and preside over a meeting of the creditors of a debtor (the 341 Meeting). The purpose of the 341 Meeting is to examine the debtor's financial position and to confirm facts stated by the debtor in the bankruptcy filing. While creditors are not required to attend the 341 Meeting, creditors have an opportunity to examine the debtor and ask questions related to the debtor's financials and the bankruptcy case.

There is a lesson for all debtor attorneys in the Chapter 7 case of In re Aquilino.[Fn. 1]

The moral of the In re Aquilino story is this:

• a little carelessness in describing and disclosing bankruptcy fees in a Chapter 7 case can create big problems.

Fee Agreements & Disclosures

Here is the winding path of fee agreement descriptions and disclosures, between the Debtors and their attorneys, in the In re Aquilino Chapter 7 case:

On April 23, 2024, the American Bankruptcy Institute’s Subchapter V Task Force issued its Final Report.

This article is the second in a series summarizing and condensing the Task Force’s Final Report into “a nutshell.” The subject of this article is:

• whether future rents should be included in the debt cap calculation for Subchapter V eligibility.[Fn. 1]

Recommendation

Delaware’s Court of Chancery has no subject matter jurisdiction over an assignment for benefit of creditors proceeding when the debtor/assignor is an Illinois corporation with no assets or operations in Delaware, even when its ABC assignee/trustee is from Delaware.

That’s the decision of Delaware’s Court of Chancery in In re Vernon Hills Serv. Co., 2024 Del. Ch., C.A. No. 2021-0783 (issued March 28, 2024).

Facts

On April 23, 2024, the American Bankruptcy Institute’s Subchapter V Task Force issued its Final Report.

This article is the first in a series that summarizes and condenses the Task Force’s Final Report into “a nutshell.” This article:

• provides background information and data on Subchapter V.[Fn. 1]

Overall

Debtor’s Chapter 11 counsel cannot be compensated for services performed after a trustee is appointed and the debtor removed from possession.

• That’s the rule of law in the Fifth Circuit and in a not-for-publication decision of the Ninth Circuit’s Bankruptcy Appellate Panel, based on a U.S. Supreme Court ruling.

So . . . the question is, what about Subchapter V? Does that same no-compensation rule apply in Subchapter V when the debtor is removed from possession?

Ninth Circuit BAP Opinion

Bankruptcies with large tort claims are common:

• some involve a limited number of claimants (e.g., a drunk driver hits a bus or a restaurant serves bad food one evening); and
• others have large numbers of claimants, some of whom won’t even be known for at least another decade (e.g., asbestos cases).

Often in tort bankruptcies, the total amount of claims overwhelms the debtor’s ability to pay: i.e., existing assets, insurance coverages and projected future income streams are, simply, insufficient.

The opinion is Bruce v. Citigroup Inc., Case No. 22-1000, decided August 2, 2023, by the U.S. Second Circuit Court of Appeals.

The opinion addresses this question:

A disclosure statement and a plan are critical documents in Chapter 11 cases, representing the culmination of a case and a roadmap of the debtor's path forward. A Chapter 11 plan can be either a plan of reorganization, pursuant to which a debtor emerges from bankruptcy as a new, reorganized entity, or a plan of liquidation, pursuant to which a debtor's remaining assets are liquidated and the proceeds are distributed to creditors. Plans of liquidation are common in Chapter 11 cases, where the debtor sells substantially all of its assets.