American Bankruptcy Institute
48 IV. Proposed Recommendations: Commencing the Case
7. professionals and compensation issues
Recommended Principles:
• The debtor’s professionals should be clearly identified as either working on matters relating to the chapter 11 case (“chapter 11 professionals”) or on matters unrelated
to the chapter 11 case (“nonbankruptcy professionals”).
• The Bankruptcy Code should define a “nonbankruptcy professional” as an individual or firm of lawyers, financial advisors, accountants, consultants, or other professionals retained by the debtor prior to or after the petition date working exclusively on business or legal matters that arise in, or relate primarily to, the day-to-day operations of the debtor’s business and that could not have a material effect on the chapter 11 case.
• Only chapter 11 professionals should be subject to sections 327 and 330.
• The debtor should file with the court a list of its nonbankruptcy professionals with its chapter 11 petition and then subsequently on a quarterly basis. That filing should include the name of each professional and a general description of the work being performed by that professional. The court sua sponte, the U.S. Trustee, or a party in interest should be able to object to the classification of a professional as a nonbankruptcy professional. If the court, after notice and a hearing, sustains such objection, the professional should be subject to sections 327 and 330 only on a prospective basis. This principle does not obviate the trustee’s need to otherwise comply with the U.S. Trustee’s requirements for quarterly operating reports.
• To the extent professionals representing ad hoc committees, parties to any agreement or settlement, or secured creditors in the chapter 11 case would be paid their fees and expenses directly or indirectly (e.g., contractual provisions with junior creditors) from the estate under the Bankruptcy Code (either through a substantial contribution motion, the creditors’ proof of claim, the chapter 11 plan, or other order of the court), the approval and payment of their fees and expenses should be subject to the reasonableness standards set forth in section 330(a).
• Professionals retained by the debtor in possession or any statutory committee should not be considered fiduciaries of the estate. Rather, those professionals’ duties should run to their respective clients and be governed by applicable nonbankruptcy law.
• A court should be permitted to authorize a trustee or an estate neutral to act not only as an attorney or an accountant for the estate, but also as a professional service provider for the estate to the extent that such authorization is in the best interests of the estate. The employment of a trustee or an estate neutral to act as a professional service provider should remain subject to appropriate limitations and restrictions to avoid self-dealing or other action that is improper or not in the best interests of the estate. Section 327(d) should be amended accordingly.