ABI Commission to Study the Reform of Chapter 11
IV. Proposed Recommendations: Commencing the Case 31
should be able to 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. Accordingly, the chapter 11 trustee should, for example, be able to cause the estate to retain managers and employees deemed necessary to the reorganization process, but such personnel should act only under the supervision of the trustee.
The Commissioners debated whether the debtor’s exclusivity periods to file a plan and solicit acceptances of a plan should terminate upon the appointment of a trustee. The Commissioners explored why termination may be appropriate; indeed, displacement of the debtor’s management suggests a need for different approaches to the reorganization, and stakeholders should have some say in the new process. The trustee, however, is appointed in large part to facilitate this new direction and should have some ability to negotiate with the various stakeholders to try to reach a resolution that benefits the estate and its stakeholders. Accordingly, the Commission determined that if the debtor has any remaining exclusivity periods under section 1121 at the time of the trustee’s appointment, the trustee should be able to step into the shoes of the debtor and receive the benefit of such remaining exclusivity periods, but should not be able to seek extensions of those periods.
In discussing the chapter 11 trustee appointment process, as well as the estate neutral appointment process described below, the Commission considered the current dual system for bankruptcy administration: (i) U.S. Trustees for 48 states, Puerto Rico, the U.S. Virgin Islands, and Guam; and (ii) Bankruptcy Administrators for Alabama and North Carolina. The Office of the U.S. Trustee operates as a division of the Department of Justice, and the Executive Office for U.S. Trustees coordinates and oversees the activities of the U.S. Trustees in 21 regional offices.113 This structure promotes uniformity and consistency in the application of federal bankruptcy laws. The Bankruptcy Administrator programs are separately administered in each state through the judiciary in those states.114
The Commissioners debated the efficiency of continuing these two separate systems. Some Commissioners believed that unifying the administration and oversight of bankruptcy cases in all jurisdictions under the Office of the U.S. Trustee would promote the uniformity in the application of federal bankruptcy laws as envisioned by the Bankruptcy Clause of the Constitution115 and would serve the interests of parties in the system. They encouraged the Commission to recommend making the U.S. Trustee program a national program that would be responsible for bankruptcy administration in all 50 states, as well as Puerto Rico, the U.S. Virgin Islands, and Guam. Other Commissioners expressed a concern that this issue was not directly within the scope of the Commission’s mandate. Consequently, the Commission decided not to address this matter.
113 For more information about U.S. Trustees and the Executive Office for the U.S. Trustees, see U.S. Trustee Program, http://www. justice.gov/ust/index.htm. 114 For more information about Bankruptcy Administrators, see Bankruptcy Administrators, http://www.uscourts.gov/ FederalCourts/Bankruptcy/BankruptcyAdministrators.aspx. 115 U.S. Const. art. I, § 8, cl.4. See also Charles Jordan Tabb, The Bankruptcy Clause, the Fifth Amendment, and the Limited Rights of Secured Creditors in Bankruptcy, 2015 Ill. L. Rev. __, at *1 (forthcoming 2015) (noting that the powers granted to Congress under the Bankruptcy Clause are extremely broad), available at http://ssrn.com/abstract=2516841.