ABI Commission to Study the Reform of Chapter 11
IV. Proposed Recommendations: Commencing the Case 35
If appointed, the primary duty of an examiner under current law is to (i) “conduct such 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”131 and (ii) “(A) file a statement of any investigation conducted . . . including any fact ascertained pertaining to fraud, dishonesty, incompetence, misconduct, mismanagement, or irregularity in the management of the affairs of the debtor, or to a cause of action available to the estate; and (B) transmit a copy or a summary of any such statement to any unsecured creditors’ committee or equity security holders’ committee, to any indenture trustee, and to such other entity as the court designates.”132
The examiner’s investigation and report may have an important effect on the direction of the case, as well as on the pursuit of claims for the benefit of creditors. For example, the examiner’s reports in the chapter 11 cases of Lehman Brothers, Residential Capital, and Tribune Company assessed the merits of claims asserted by parties in the case, identified additional potential claims and causes of action, and provided parties in interest with substantial information concerning the debtor and its case that otherwise likely would have been undiscovered or unavailable.133 Commentators summarize these benefits as follows:
If equipped with a mandate of sufficiently broad scope, an examiner may promote efficiency by navigating among the frequent multiplicity of other investigations by government authorities, boards of directors, creditors, and shareholders. The examiner may play the lead role among the players in the bankruptcy case by conducting an expansive and timely investigation that will aid parties later in pursuing monetary recoveries and other remedies. In many respects, the examiner should preempt the bankruptcy field by vastly reducing the need for early and duplicative discovery
efforts by separate creditors or committees. 134
Notwithstanding the potential benefit to the estate, some observers argue that an examiner simply adds another layer of cost and delay to the process and that the debtor in possession or unsecured creditors’ committee can serve the same function.135 The primary response to this potential critique is that an examiner comes to the process with a special, independent, and neutral role, which no other party can claim. The principle that the proper role of an examiner is that of a disinterested, nonadversarial officer of the court has been so widely accepted that it can hardly be doubted.136
131 11 U.S.C. § 1104(c). 132 Id. § 1106(a)(4) (referred to in 11 U.S.C. § 1106(b)). 133 See Report of Kenneth N. Klee, Examiner, In re Tribune Co., No. 08-13141 (July 26, 2010) [Docket Nos. 5130, 5131, 5132, 5133]; Report of Anton R. Valukas, Examiner, In re Lehman Bros. Holdings, Inc., No 08-13555 (Bankr. S.D.N.Y. Mar. 11, 2010) [Docket No. 7531]; Report of Arthur J. Gonzalez, Examiner, In re Residential Capital, LLC, No. 12-12020 (Bankr. S.D.N.Y. May 13, 2013) [Docket No. 3698]. (Kenneth N. Klee and Arthur J. Gonzalez are Commissioners.) 134 Clifford J. White III & Walter W. Theus, Jr., Chapter 11 Trustees and Examiners after BAPCPA, 80 Am. Bankr. L. J. 289, 290 (2006). 135 See, e.g., Dickerson, supra note 19, at 904 (“[H]aving an examiner in a case can substantially increase the costs of the reorganization and, accordingly, reduce the amount available to pay creditor claims. Because examiners are often appointed in cases that have active creditor committees, courts have refused to appoint an examiner if doing so would increase the number of fiduciaries already involved in a case. Some courts have argued that examiners often duplicate the work already being performed by creditors’ committees.”). 136 Examples of cases stating this principle: Kovalesky v. Carpenter, 1997 WL 630144, at *3 (S.D.N.Y. Oct. 9, 1997) (“Examiners . . . play a chiefly information-seeking role and, like the court itself, must remain a neutral party in the bankruptcy process.”); In re Big Rivers Elec. Corp., 213 B.R. 962, 977 (Bankr. W.D. Ky. 1997) (“[The examiner is] a party who is not an adversary but rather an independent third party and officer of the Court.”); In re Interco Inc., 127 B.R. 633, 638 (Bankr. E.D. Mo. 1991) (“[T] he Examiner’s role is by its nature disinterested and nonadversarial. There is no doubt that the Examiner is a neutral party in a bankruptcy case.”); In re Baldwin United Corp., 46 B.R. 314, 316 (Bankr. S.D. Ohio 1985) ([The Examiner] is first and foremost disinterested and nonadversarial. . . . [H]e answers solely to the Court.”).