ABI Commission to Study the Reform of Chapter 11
IV. Proposed Recommendations: Commencing the Case 43
in a competitor of the debtor may have adverse interests. The Commissioners acknowledged that the U.S. Trustee was asking more nuanced questions concerning a creditor’s interests in a debtor’s case during the committee formation process.163 They recognized, however, that some conflicts of interest are inevitable. The Commission concluded that the court and the U.S. Trustee are both well positioned to address any problematic conflicts of interest that may arise on a committee on a case-by-case basis, in the same way in which they are empowered to address unnecessary costs and delays associated with unsecured creditors’ committees.
5. estate fiduciaries
Recommended Principles:
• The doctrine set forth in Barton v. Barbour, 104 U.S. 126, 127–29 (1881) (which provides that to sue a court-appointed receiver, a party must obtain leave from the court that ordered such appointment) should also apply to the following parties in chapter 11 cases: trustees, estate neutrals, and statutory committees and their members, as well as professionals retained to represent any of the foregoing parties
in their fiduciary capacity.
Estate Fiduciaries: Background
In Barton v. Barbour, the U.S. Supreme Court confirmed the “general rule that before suit is brought against a receiver leave of the court by which he was appointed must be obtained.”164 The Supreme Court also held that this general rule applies equally to suits seeking equitable relief (e.g., to recover specific property) and damages (i.e., money).165 Courts have generally extended the Barton doctrine to trustees166 in bankruptcy and other officers appointed by the court. “As the Sixth Circuit has observed, under the Barton doctrine, ‘court appointed officers who represent the estate are the functional equivalent of a trustee.’”167 Accordingly, some courts have determined that postconfirmation trustees and members of the unsecured creditors’ committee are also deemed officers appointed by the court and thus covered by the Barton doctrine.168
26 (“[D]ebtors sometimes have promulgated plans with very large administrative convenience claim caps for trade claims. Any claim up to that cap would be paid in full. Even claims above such cap could voluntarily elect to reduce their claims to the cap and, to that extent, often receive close to full payment. In this manner, debtors have been able to pay trade creditors under a plan a higher percentage on account of their claims then, for instance, similarly situated unsecured bondholders.”). 163 See, e.g., DeAngelis & Eitel, supra note 147, at 58–59 (explaining that the U.S. Trustee considers, among other things, whether “the creditor will be paid as a critical vendor, has an executory contract or lease that will be assumed (and defaults cured), holds claims among multiple levels of the company’s debt structure, or has insurance or other hedges that may limit its exposure or affect the identity of the true beneficial holder of the claim”). 164 Barton v. Barbour, 104 U.S. 126, 128 (1881). 165 “A suit . . . brought without leave to recover judgment against a receiver for a money demand, is virtually a suit the purpose of which is, and effect of which may be, to take the property of the trust from his hands and apply it to the payment of the plaintiff’s claim, without regard to the rights of other creditors or the orders of the court which is administering the trust property.” Id. at 129. 166 As previously noted, references to the trustee are intended to include the debtor in possession as applicable under section 1107 of the Bankruptcy Code, and implications for debtors in possession also apply to any chapter 11 trustee appointed in the case. See supra note 76 and accompanying text. See generally Section IV.A.1, The Debtor in Possession Model. 167 In re Crown Vantage, Inc., 421 F.3d 963 (9th Cir. 2005) (quoting Allard v. Weitzman (In re DeLorean Motor Co.), 991 F.2d 1236 (6th Cir. 1993)). 168 Id. See also Blixseth v. Brown, 470 B.R. 562 (D. Mont. 2012) (applying Barton doctrine to chair of the creditors’ committee).