ABI Commission to Study the Reform of Chapter 11
IV. Proposed Recommendations: Commencing the Case 53
is providing bankruptcy-related services in a debtor’s chapter 11 case, the firm’s status is imputed to all professionals, such that all professionals within that firm should be considered chapter 11 professionals).
The Commission also considered whether the reasonableness standards of section 330 should apply to the compensation requests of all professionals. Section 330 sets forth a variety of factors that the court should consider in reviewing and approving professionals’ fees and expenses. The court’s review requires meaningful disclosures from the professionals concerning their fees and expenses. Each professional retained by the debtor, unsecured creditors’ committee, and any estate neutral or trustee (collectively, the chapter 11 professionals) is required to file detailed fee applications with the court to facilitate this review. The Commissioners believed that the disclosure and transparency demanded by section 330 was warranted when the professionals’ services directly affected, assisted, or were performed on behalf of the estate and when the requested compensation would be paid by the estate. In these instances, the court, the U.S. Trustee, and parties in interest should have an opportunity to review the specific services performed and whether they justified the use of estate resources.
After comparing the roles of chapter 11 professionals versus nonbankruptcy professionals, the Commission determined that only chapter 11 professionals should be subject to the retention and compensation standards of sections 327 and 330. The Commissioners did not believe that the types of services provided by, and the typical compensation paid to, nonbankruptcy professionals warrant the time and expense associated with compliance under sections 327 and 330. Moreover, they found that the disclosure about nonbankruptcy professionals and their services would adequately protect the interests of the estate and allow reclassification if necessary or appropriate. In reaching its conclusions, the Commission emphasized that nonbankruptcy professionals should include only those professionals who — on an individual or firm basis — work exclusively on matters unrelated to the chapter 11 case. If a professional firm retained by the estate to perform services relating to the chapter 11 case also provides services to the debtor on general litigation or employment matters, for example, that firm and the professionals working at that firm should be considered chapter 11 professionals.
Other Professionals
The Commission reviewed similar issues and concerns with respect to professional compensation paid by the estate for services provided to secured creditors; creditors who are parties to settlements or agreements with the debtor, trustee, estate or other parties in the case (e.g., intercreditor agreements); and ad hoc committees. The Commissioners recognized that the services of these professionals could add value to a chapter 11 case. Moreover, the payment of the attendant professionals’ fees and expenses is often part of the underlying bargain and is authorized by an order of the court in connection with a substantial contribution motion, a motion to approve the settlement or agreement under the Bankruptcy Code, the creditor’s proof of claim, or the chapter 11 plan. Nevertheless, some of the Commissioners expressed concern that parties often stipulate to the reasonableness of professionals’ fees and expenses, such that they are no longer subject to any meaningful review by the court or other parties in interest.