American Bankruptcy Institute
34 IV. Proposed Recommendations: Commencing the Case
the proceedings.”123 For this reason, “appointment under § 1104(c)(1) must, therefore, be in the interests of everyone with a stake in the case, including creditors, equity security holders, and other interests of the estate.”124 When only certain parties (i.e., the movants) would likely benefit from the appointment of an examiner, such request was not deemed to satisfy the “interests” test.125 In deciding whether to appoint an examiner, courts have also considered the overall financial benefit that an examiner could bring to the estate.126 Allegations of corporate fraud and misconduct by a debtor’s insiders or affiliates are often cited as reasons for appointing an examiner so that the examiner may investigate such allegations.127
It is noteworthy that although the language in section 1104 is not explicit, some courts and scholars have stated that the “interests” test for the appointment of examiners is the same “interests” test that is applied to the appointment of trustees: the “best interests” test.128 This reasoning may be based on the fact that the “interests” test in section 1104(a) respecting trustee appointments and section 1104(c) respecting examiner appointments is substantially identical;129 indeed, the statute does not explicitly provide for a “best interests” test.130
123 Official Comm. of Asbestos Pers. Injury Claimants v. Sealed Air Corp. (In re W.R. Grace & Co.), 285 B.R. 148, 156 (Bankr. D. Del. 2002). 124 In re Gliatech, Inc., 305 B.R. 832, 836 (Bankr. N.D. Ohio 2004) (citations omitted). Another court explained that “[a] single creditor group ‘cannot justify the appointment of a[n] . . . examiner simply by alleging that it would be in its interests.’” In re
Sletteland, 260 B.R. 657, 672 (Bankr. S.D.N.Y. 2001) (citations omitted). See also In re Lenihan, 4 B.R. 209, 212 (Bankr. D.R.I. 1980) (“[W]ill such an appointment benefit the estate of the debtor and the interests of creditors? A bankruptcy court, which must eventually pass upon questions of fairness, good faith, best interest, etc. prior to confirmation, cannot blindfolded by the tactical jockeying of the parties in determining what is in the interest of the estate.”) (citations omitted). 125 See, e.g., In re Loral Space & Commc’ns Ltd., 313 B.R. 577, 583–84 (Bankr. S.D.N.Y. 2004), rev’d and remanded on other grounds, 2004 WL 2979785 (S.D.N.Y. Dec. 23, 2004) (“The Ad Hoc Committee’s motion clearly fails the ‘in the interests of the estate’ test of section 1104(c)(1) of the Bankruptcy Code. First, under section 1104(c)(1) the appointment of an examiner must be in the interests of the estate in general. Here, however, the appointment of an examiner would, at best for the shareholders, advance only their interests in opposition to the Debtors’ plan.”). On appeal, the district court reversed and remanded to the bankruptcy court, mandating the appointment of an examiner but solely on the ground that “[o]n its face, Section 1104(c)(2) mandates the appointment of an examiner where a party in interest moves for an examiner and the debtor has $5,000,000 of qualifying debt.” In re Loral Space & Commc’ns Ltd., 2004 WL 2979785, at *4 (S.D.N.Y. Dec. 23, 2004). 126 See, e.g., In re Loral Space & Commc’ns Ltd., 313 B.R. 577, 584 (Bankr. S.D.N.Y. 2004), rev’d and remanded on other grounds, 2004 WL 2979785 (S.D.N.Y. Dec. 23, 2004) (“[T]he appointment of an examiner would not be in the estates’ interest in the light of the negligible benefits of the requested valuation balanced against its cost.”); In re Shelter Res. Corp., 35 B.R. 304, 305 (Bankr. N.D. Ohio 1983) (“The appointment of an examiner would entail undue delay in the administration of this estate and most likely cause the debtor to incur substantial and unnecessary costs and expenses detrimental to the interests of creditors and parties in interest.”); In re Hamiel & Sons, Inc., 20 B.R. 830, 837 (Bankr. S.D. Ohio 1982) (conducting cost/benefit analysis when considering appointment of trustee or examiner). 127 See, e.g., In re Keene Corp., 164 B.R. 844, 856 (Bankr. S.D.N.Y. 1994) (“Often, appointment of an examiner is warranted when the debtor’s transactions with affiliates should be investigated.”) (quoting M. Bienenstock, Bankruptcy Reorganization 299 (1987)). Another bankruptcy court appointed an examiner because it found that it was in the interest of creditors to involve an examiner in light of the significant amount of debt, receivables, and other obligations at stake and that “[t]he involvement of an examiner will contribute valuable perspective to a case with many competing interests at stake.” In re First Am. Health Care of Ga., Inc., 208 B.R. 992, 995 (Bankr. S.D. Ga. 1996). 128 See In re Lenihan, 4 B.R. 209, 211 (Bankr. D.R.I. 1980) (holding that the decision to appoint an examiner “rests on a determination by the court that such appointment would be in the best interests of creditors, equity security holders, and the estate; the same test used to determine whether the appointment of a trustee is warranted”) (emphasis added); Ryan M. Murphy, Does the Recent String of Examiner Appointments in Delaware Represent a Sea Change in Approach or Merely a Perfect Storm of Cases?, Norton J. Bankr. L. 2011.04-2 (2011) (“[A] bankruptcy court is authorized to appoint an examiner under two scenarios: (1) where it is in the best interest of the estate and interested parties; or (2) where the debtor’s fixed, unliquidated debts (excluding claims for goods, services, taxes and insider transactions) exceed $5 million.”) (citations omitted) (emphasis added); 5 Norton Bankr. L. & Prac. 3d § 99:25 (“The ‘best interests’ test for the appointment of an examiner, like the Code § 1104(a)(2) provision for the appointment of a trustee6 is a flexible and discretionary standard.”). 129 Section 1104(a) provides that the court shall appoint a trustee if, among other reasons, “such appointment is in the interests of creditors, any equity security holders, and other interests of the estate.” 11 U.S.C. § 1104(a)(2). Section 1104(c) provides that the court shall appoint an examiner if, setting the debt threshold aside, “such appointment is in the interests of creditors, any equity security holders, and other interests of the estate.” 11 U.S.C. § 1104(c)(1). 130 “Sections 1104(a)(2) and (c)(1) of the Bankruptcy Code, using identical language, authorize the appointment of a trustee or examiner, respectively, if ‘such appointment is in the interests of creditors, any equity security holders, and other interests of the estate.’ Under these provisions, a creditor group, no matter how dominant, cannot justify the appointment of a trustee or examiner simply by alleging that it would be in its interests. It must show that the appointment is in the interests of all those with a stake in the estate, which in this case would include the Debtor. As Collier points out, ‘Use of the word ‘and’ suggests that creditors cannot on their own obtain the appointment of a trustee under the provision in order to disenfranchise equity security holders or other interests.’” In re Sletteland, 260 B.R. 657, 672 (Bankr. S.D.N.Y. 2001).