American Bankruptcy Institute
26 IV. Proposed Recommendations: Commencing the Case
2. the chapter 11 trustee
Recommended Principles:
• The standard for appointing a chapter 11 trustee under section 1104(a) of the
Bankruptcy Code should not change.
• The burden of proof with respect to requests for the appointment of a chapter 11 trustee under section 1104(a) should be based on the preponderance of the evidence standard. Case law requiring application of the clear and convincing standard should be overturned by statutory amendment.
• As is currently provided by section 1104(d), the U.S. Trustee should continue to select and appoint a disinterested person to serve as chapter 11 trustee after the court enters an order under section 1104(a) directing such appointment and after consultation with parties in interest.94
• A party in interest should be able to object to the person appointed as the chapter 11 trustee. An objecting party should plead with particularity the facts supporting its objection. The objection should be filed and heard on an expedited basis. The court should approve the person appointed by the U.S. Trustee unless the objecting party establishes by clear and convincing evidence that: (1) the U.S. Trustee did not properly consult with parties in interest; (2) the person selected is not eligible to serve as trustee under section 321; (3) the person selected has not qualified to serve as trustee under section 322; (4) the person selected is not disinterested; or (5) the person selected has a disqualifying conflict of interest. If an objection is filed, the court should approve or disapprove the person appointed as chapter 11 trustee by the U.S. Trustee, but the court should not otherwise be involved in the chapter 11 trustee selection process.
• Section 1104(b), which provides for the election of a chapter 11 trustee, should be deleted.
• Once appointed, the chapter 11 trustee may take any actions and exercise any powers with respect to the estate as authorized under section 1106 without the approval or consent of the debtor, the debtor’s board of directors (or similar governing body), any of the debtor’s officers or similar managing persons, or the debtor’s equity security holders.
• The appointment of a chapter 11 trustee should not terminate the debtor’s exclusivity period to file, or its time to solicit acceptances of, a plan, but should preserve such exclusivity period solely for the benefit of the trustee. Accordingly, the trustee should receive the benefit of any remaining exclusivity period under section 1121, provided that a party in interest should be able to file a motion seeking to shorten or terminate such period as provided in section 1121(d). Section 1121(c)(1) should be amended accordingly.
94 Bankruptcy cases in Alabama and North Carolina are not under the jurisdiction of the U.S. Trustee, but rather are administrated by Bankruptcy Administrators in those jurisdictions. Accordingly, the applicable rules of those jurisdictions would govern the appointment process.