ABI Commission to Study the Reform of Chapter 11
IV. Proposed Recommendations: Commencing the Case 51
under chapter 9 or 11 of this title.”192 In other instances, the operative loan documents, intercreditor agreement, or other agreement may provide for such payment.
Courts generally require a party making a request under section 503(b)(3)(D) to prove “extraordinary efforts” to benefit the estate.193 Some courts also require a showing that the party in fact intended to benefit the estate through such efforts.194 Moreover, if a party establishes a substantial contribution claim under section 503(b)(3)(D), it may also be entitled to reasonable compensation “for professional services rendered by an attorney or an accountant of an entity whose expense is allowable under subparagraph (A), (B), (C), (D), or (E) of paragraph (3) of this subsection, based on the time, the nature, the extent, and the value of such services, and the cost of comparable services other than in a case under this title, and reimbursement for actual, necessary expenses incurred by such attorney or accountant.”195
Trustee and Estate Neutral Issues
As suggested above, section 327 generally permits the trustee to retain lawyers, accountants, financial consultants, and other professionals to represent the estate and assist with the administration of the estate and the debtor’s reorganization. These professionals must be disinterested and may not hold interests adverse to the estate.196 Section 327(d), in turn, “permits the court to authorize the trustee, if qualified to act as his own counsel or accountant.”197 Notably, section 327(d) is limited to the trustee and to the trustee (or its firm) acting as lawyer or accountant. This provision does not account for other professionals who may serve as trustees and who could add value to the estate by representing the estate in their professional capacities.
In addition, a chapter 11 trustee is subject to the same compensation provisions applicable to chapter 7 trustees under sections 326(a) and 330. In a chapter 7 liquidation, the mechanics of section 326(a) work well198; a trustee is compensated based on a percentage of the moneys distributed to parties in interest other than the debtor. In a chapter 11 case, however, the limitations of section 326(a) might serve as a disincentive for a trustee to seek recoveries that would result in a return of funds to equity. In fact, some courts have denied compensation to chapter 11 trustees under section 326(a) when distributions are made to the debtor, or property or value other than money is distributed in the case.199
192 11 U.S.C. § 503(b)(3)(D). 193 See, e.g., In re Granite Partners, L.P., 213 B.R. 440, 445 (Bankr. S.D.N.Y. 1997) (“[C]ompensation is limited to those extraordinary actions . . . that lead to an ‘actual and demonstrable benefit to the debtor’s estate, the creditors, and to the extent relevant, the stockholders.’”) (citations omitted); In re White Motor Credit Corp., 50 B.R. 885, 892 (Bankr. N.D. Ohio 1985) (“‘Extraordinary efforts and remarkable results’ are required for consideration of a premium payment.”). 194 See, e.g., In re Lister, 846 F.2d 55, 57 (10th Cir. 1988) (“Administrative expenses incurred prior to the filing of a bankruptcy petition are compensable under 11 U.S.C. § 503(b)(3)(D), if those expenses are incurred in efforts which were intended to benefit, and which did directly benefit, the bankruptcy estate.”); In re Alert Holdings Inc.,157 B.R. 753, 758 (Bankr. S.D.N.Y. 1993) (court held that “[n]either [the creditor’s] asserted help in forming the ad hoc committee, nor his participation in the multidistrict litigation demonstrates an intent to substantially benefit the debtors’ estates, and any benefit that may have otherwise enured to the estates can be considered unintentional and incidental.”); In re 9085 E. Mineral Office Bldg., Ltd., 119 B.R. 246, 251–52 (Bankr. D. Colo. 1990) (“[T]his Court cannot find that [the creditor’s] efforts were in no way intended to confer a benefit upon the estate as a whole.”). 195 11 U.S.C. § 503(b)(4). 196 11 U.S.C. § 327(a). 197 S. Rep. 95-989, 38 (1978), reprinted in 1978 U.S.C.C.A.N. 5787, 5824. See also 11 U.S.C. § 327(d). 198 See, e.g., Pritchard v. U.S. Trustee, 153 F.3d 232 (5th Cir. 1998) (“The section is consistent with the duty of a Chapter 7 trustee to collect and reduce the property of the bankrupt’s estate to money.”). 199 See, e.g., id. at 237 (declining to follow “bankruptcy courts [that] have interpreted the section to include disbursements other than money within the calculation of a trustee’s maximum compensation”) (collecting cases). In addition, some courts hold that