What is a Chapter 11 Examiner?
In most Chapter 11 bankruptcy cases in South Florida, the business debtor will serve as “debtor in possession,” which involves fulfilling many of the same functions that a trustee performs in other types of bankruptcy cases. This means that the business continues to manage its assets during the terms of the reorganization and repayment plan, and a trustee will usually only be appointed in bankruptcy cases in which there are concerns about how the debtor in possession is handling assets and duties. Like a trustee, a debtor in possession is required to obtain court approval to use assets for reasons that “fall outside the scope of regular business activities,” and the debtor in possession must maintain detailed records of all actions.
Given that a trustee is not typically appointed in a Chapter 11 case, under what circumstances would an “examiner” be appointed? Our West Palm Beach bankruptcy lawyers can tell you more about this role and when it becomes relevant in a Chapter 11 bankruptcy case.
What is a Chapter 11 Examiner?
Under bankruptcy law, a Chapter 11 examiner will only be appointed if the court does not appoint a trustee, and the US trustee or a party in interest requests the appointment of an examiner. The court will then hold a hearing to determine whether an examiner should be appointed “to conduct as an investigation of the debtor as is appropriate, including an investigation of any allegations of fraud, dishonesty, incompetence, misconduct, mismanagement, or irregularity in the management of the affairs of the debtor of or by current or former management of the debtor.”
The US Bankruptcy Code says an examiner will only be appointed for one or more of the above reasons if one of the following is true:
- Appointment of an examiner is in the interests of creditors, any equity security holders, and other interests of the estate; or
- Debtor’s fixed, liquidated, unsecured debts, other than debts for goods, services, or taxes, or owing to an insider, exceed $5,000,000.
What Does a Chapter 11 Examiner Do?
A Chapter 11 examiner has certain investigative functions that a bankruptcy trustee has. Generally speaking, whenever a Chapter 11 examiner is appointed — and such appointment is rare — the examiner has an even narrower role than an appointed trustee would have. At the same time, however, US bankruptcy law says that each individual bankruptcy court has the “authority to determine the duties of an examiner in each particular case.”
Whenever an examiner is appointed, the examiner must file a statement of any investigation they have conducted. To reiterate, however, the appointment of an examiner is rare in a Chapter 11 case, and examiners cannot be appointed in Subchapter V cases.
Contact a West Palm Beach Bankruptcy Lawyer for Assistance
If your business is considering a Chapter 11 bankruptcy filing, it is essential to begin working with an experienced West Palm Beach bankruptcy attorney at Kelley, Fulton, Kaplan & Eller. Chapter 11 bankruptcies can be extremely complicated, and having a business bankruptcy lawyer from the start can give your business peace of mind as you begin working through debt restructuring plans and the future financial stability of your business. Whether you have specific questions about a Chapter 11 trustee or examiner, or you want to find out more about business reorganization bankruptcy, our firm can assist you. Contact us today to find out more.
Sources:
uscourts.gov/court-programs/bankruptcy/bankruptcy-basics/chapter-11-bankruptcy-basics
law.cornell.edu/uscode/text/11/1104
law.cornell.edu/wex/debtor_in_possession
