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Typically, when one thinks of a fiduciary in a Chapter 11 case, the focus is on (i) the debtor in possession or trustee, who manages the debtor’s business and seeks to cause the debtor in possession’s emergence out of bankruptcy through confirmation of a plan, and (ii) the creditors’ committee, which oversees the management of the debtor in possession’s business and helps direct the reorganization process in a way that will serve its constituency. Technically, an examiner’s duty is to the bankruptcy court, and not to the debtor’s estate and creditors. The examiner’s historical allegiance to the court is consistent with his traditional duties of investigating the debtor’s acts and business and then reporting his findings or making recommendations to the court. Nonetheless, it is expected and likely that the examiner’s efforts will inure to the benefit of the debtor’s estate and creditors. As Chapter 11 cases have grown in size, complexity and volume, bankruptcy courts have charged examiners with more, different and greater duties, some of which would seem to necessarily cloak examiners with fiduciary duties to the estate and creditors, in addition to the ever-present duty to serve and report to the court. This article will consider the pivotal and evolving role of examiners in Chapter 11 cases, from the congressional intent and statutory authority which spawned the traditional examiner’s duties to the myriad other roles that examiners have been asked to play, most recently in the Enron, WorldCom and Global Crossing Chapter 11 cases. UNDER THE BANKRUPTCY ACT There was no specific provision in the Bankruptcy Act of 1898 for the appointment of an examiner. However, the bankruptcy rules applicable to Chapter X corporate reorganizations did provide for the appointment of “a disinterested person … as examiner” to perform designated duties. Bankruptcy Act, Chapter X, Rule 10-208(b). Moreover, the authority of the bankruptcy court to appoint a disinterested third party such as an examiner was acknowledged by applicable 1898 act caselaw, in Clarke v. Utilities Power & Light Corp. (In re Utilities Power & Light Corp.), 90 F.2d 798, 800 (7th Cir. 1937). Thus, although the bankruptcy court’s authority to appoint an examiner or an examiner’s specific duties were not specifically codified under the 1898 act, the bankruptcy rules and caselaw acknowledged that such a person may be appointed by the bankruptcy court to examine the debtor and report to the court. The precursors to Chapter 11 of the Bankruptcy Code (Code) were Chapters X (Corporate Reorganizations) and XI (Arrangements) of the Bankruptcy Act of 1898. Under the 1898 act, a tension developed in practice between Chapters X and XI, a tension that was addressed and resolved, in part, by the provisions of the Bankruptcy Code concerning Chapter 11 trustees and examiners. THE PUBLIC CASE ISSUE Under Chapter X corporate reorganizations, the appointment of a trustee was mandatory in all cases where the debtor’s obligations were $250,000 or greater. Bankruptcy Act of 1898, � 156. The trustee or, in smaller cases, the debtor in possession, could utilize Chapter X to address and restructure secured debt and equity. Bankruptcy Act of 1898, � 216. Chapter X was intended to be a vehicle for the corporate reorganization of large public companies. In contrast, under Chapter XI arrangements, the debtor typically remained in possession, with no trustee being appointed (Bankruptcy Act of 1898, � 342), although a “receiver” could be appointed in some cases, if warranted. Bankruptcy Act of 1898, � 332. The debtor could not address and restructure secured debt and equity. Bankruptcy Act of 1898, � 357. For the most part, Chapter XI was intended for smaller, private companies, as opposed to large public companies which Congress expected to utilize Chapter X. Notwithstanding this intent that large public companies would opt for Chapter X to restructure their secured debt and equity, in practice such companies often elected to file arrangements under Chapter XI in order to avoid the mandatory appointment of a trustee and the concurrent ouster of the debtor’s management team. “Collier on Bankruptcy,” �1104.LH[1][a][ii] at 1104-44 (Matthew Bender 15th ed. 2002). The Securities and Exchange Commission (SEC), obviously sensitive to the interests of public debt and equity security holders, frequently found it necessary to move to convert cases from Chapter XI to Chapter X to ensure that an independent trustee, and not prior, often flawed management, was at the helm. Id. UNDER THE BANKRUPTCY CODE The drafters of the Bankruptcy Code recognized this tension and sought to meld the provisions of Chapter X and XI. There would now be a presumption in favor of the debtor in possession’s continued management and control of its business. However, in deference to the SEC’s concerns about reorganizations involving public debt and equity security holders, � 1104(c) was adopted to govern the appointment of trustees and examiners. Unlike the 1898 act, the code expressly authorizes bankruptcy courts to appoint examiners. 11 U.S.C. � 1104(c). Indeed, the face of the statute not only authorizes the appointment of an examiner, it actually mandates that a court appoint an examiner if the debtor has $5 million of qualifying unsecured debt (“the Court shallorder the appointment of an examiner … if … the debtor’s fixed, liquidated, unsecured debts, other than debts for goods, services, or taxes, or owing to an insider, exceed $5,000,000″) (emphasis added). 11 U.S.C. � 1104(c)(2); Keene Corp. v. Coleman (In re Keene Corp.), 164 B.R. 844, 855 (Bankr. S.D.N.Y. 1994). Notwithstanding this mandatory language, courts have reached different conclusions regarding the mandatory nature of � 1104(c)(2). In Morgenstern v. Revco D.S., Inc. (In re Revco D.S. Inc.), 898 F.2d 498, 500-01 (6th Cir. 1990), the 6th U.S. Circuit Court of Appeals, representing the majority view, concluded that when the statutory requirements of � 1104(b)(2) (now � 1104 (c)(2)) are met, a court has no discretion but to order the appointment of an examiner because the statute is clear on its face. On the other hand, the bankruptcy court in In re Rutenberg, 158 B.R. 230, 233 (Bankr. N.D. Fla. 1993), for example, seemingly ignored the plain meaning of the statute in determining that an examiner is not mandatory under what is now � 1104(c)(2) where the appointment would delay administration of a case. These are but two examples of how bankruptcy courts address the seemingly mandatory appointment provisions of � 1104(c)(2). It appears that those courts that determine not to implement the plain meaning of the statute may do so based upon a result-oriented approach, i.e., the court determines that the administration of the Chapter 11 case would be better promoted without an examiner, or because the legislative history of � 1104(c)(2) demonstrates that the provision was specifically intended for Chapter 11 cases filed by large public companies. The Bankruptcy Code provides that a bankruptcy court also mayappoint an examiner in its discretionpursuant to � 1104(c)(1) of the code if “such appointment is in the interests of creditors, any equity security holders and other interests of the estate.” See11 U.S.C. � 1104(c)(1). The traditional role of an examiner has been investigative in nature. [FOOTNOTE 1]In Weld v. Robert A. Sweeney Agency, Inc. (In re Patton’s Busy Bee Disposal Service, Inc.), 182 B.R. 681 (Bankr. W.D.N.Y. 1995), for example, the U.S. Trustee had initially moved either to dismiss or convert the debtor’s case. The Trustee was concerned that the debtor had incurred losses during the Chapter 11 case, that it had transferred funds to an affiliate, that it was unable to propose a feasible plan, and that its officers and counsel had failed to attend regularly scheduled meetings of creditors. It appeared that the debtor might be a valuable entity whose assets would have value as a going concern. Due to environmental problems, however, the potential for personal liability precluded the appointment of an operating trustee. Recognizing both the need to impose some additional safeguards and the benefits of continued business operations, the court allowed the debtor to remain in possession, but assigned certain responsibilities to an examiner. Patton’s Busy Bee Disposal, 182 B.R. at 684. The examiner was appointed to investigate the acts, conduct, assets, liabilities and financial condition of the debtor, the operation of the debtor’s business and the desirability of the continuance or sale of such business, and any other matter relevant to the case or to the consummation of a sale. Id. Another example of a bankruptcy court’s use of an examiner in an investigative role is In re Keene. There the debtor moved for the appointment of an examiner to investigate possible fraudulent transfer claims and claims for misappropriation and breach of fiduciary duty against the debtor’s present and former officers and directors. The Keenecourt appointed an examiner to investigate such claims and report to the court, calling it “a textbook case … for the appointment of an examiner in the interest of creditors.” 164 B.R. at 856-58. The Keenecourt envisioned that the investigation by the examiner, particularly concerning the complex interrelationship of various corporate entities, could be performed far more suitably by an examiner than by a creditors’ committee. Id.at 856 (citation omitted). POWERS CAN BE EXPANDED Some courts, relying upon the flexibility of � 1106(b) to tailor the examiner’s duties to the particular needs of the bankruptcy court in a given case, have expanded the role of the examiner to include non-investigative matters. For example, courts have appointed examiners (i) to solicit bids for the sale of a debtor’s assets, to assume all avoidance powers set forth in �� 544, 547, 548 and 549 of the Bankruptcy Code, and to review and object to claims against a debtor; [FOOTNOTE 2](ii) to mediate and aid in breaking a deadlock in plan negotiations and to assist the court at disclosure statement hearings, particularly in the event of competing plans; [FOOTNOTE 3](iii) with all the powers and duties of a trustee, in lieu of the appointment of a trustee, to enable a debtor to continue as a party in a district court action; [FOOTNOTE 4](iv) to bring suit on behalf of a debtor in possession for the benefit of the estate; [FOOTNOTE 5]and (v) to propose and confirm a plan. [FOOTNOTE 6] Perhaps the most unique role performed by an examiner was in the Maxwell Communication international insolvency proceedings. On Dec. 16, 1991, Maxwell Communication Corporation plc (Maxwell) filed a Chapter 11 petition in the U.S. Bankruptcy Court for the Southern District of New York. See In re Maxwell Communication Corporation plc, 93 F.3d 1036, 1041 (2d Cir. 1996). The next day, Maxwell petitioned the High Court of Justice in London for an administration order, the British equivalent to Chapter 11 relief. High Court Justice Leonard Hoffman appointed members of the London office of the accounting firm of Price Waterhouse as administrators to manage the affairs and property of the corporation. In order to minimize inconsistencies and conflicts likely to arise from simultaneous bankruptcy/insolvency proceedings in different countries and to facilitate and expedite Maxwell’s reorganization, U.S. Bankruptcy Judge Tina Brozman appointed an examiner in the Chapter 11 case pursuant to code � 1104(c). The order appointing the examiner required him, among other things, to investigate the debtor’s financial condition, to function as a mediator among the various parties, and to “act to harmonize, for the benefit of all of [Maxwell's] creditors and stockholders and other parties in interest, [Maxwell's] United States chapter 11 case and [Maxwell's] United Kingdom administration case so as to maximize [the] prospects for rehabilitation and reorganization.” Maxwell Communication, 93 F.3d at 1042. Judge Brozman and Justice Hoffman subsequently authorized the examiner and the administrators to coordinate their efforts pursuant to a so-called Protocol, an agreement between the examiner and the administrators. Id.In approving the Protocol, Judge Brozman recognized the English administrators as the corporate governance of the debtor in possession. Id. The examiner was charged with reviewing, facilitating and at times consenting to actions taken by the administrators as Maxwell’s corporate governance. See “The Role of the Examiner in the Maxwell Communication Corporation PLC International Insolvency,” 671 PLI/Comm. 229, 243 (1993). The “power to mediate and facilitate the resolution of differences toward the goal of confirming a plan of reorganization” was the role accorded the examiner in the Maxwell Chapter 11 case. Id.at 239. The order appointing the examiner and the Protocol constituted “something of a bilateral treaty on the international insolvency of [Maxwell], created to facilitate the harmonization of the United States’ and United Kingdom’s respective insolvency systems for the benefit of [Maxwell] and its creditors.” Id.at 247. The joint efforts of the administrators and the examiner resulted in what has been described as a “remarkable sequence of events leading to perhaps the first world-wide plan of orderly liquidation ever achieved.” Maxwell Communication, 93 F.3d at 1042. (quoting Jay Lawrence Westbrook, “The Lessons of Maxwell Communication,” 64 Fordham L. Rev. 2531, 2535 (1996)). The administrators, the examiner and other interested parties worked together to produce a common system for reorganizing Maxwell by disposing of assets as going concerns and distributing the proceeds to creditors. Maxwell Communication, 93 F.2d at 1042 (citation omitted). The coordinated effort resulted in a plan of reorganization and a scheme of arrangement, interdependent documents filed by the administrators in the U.S. and English courts respectively. Id.Following the requisite voting here and in England, creditors approved the plan in the U.S. and the scheme in England. Id.Judge Brozman confirmed the plan and, by implication, the scheme incorporated therein, on July 14, 1993, and Justice Hoffman sanctioned the scheme on July 21, 1993. Id. EXAMINERS IN RECENT CASES With the recent wave of accounting scandals and allegations of fraud and breach of fiduciary duty on the part of corporate executives, examiners have played and undoubtedly will continue to play pivotal roles in complex Chapter 11 cases. Indeed, with the enormous amount of public debt in recent Chapter 11 mega-cases, the appointment of an examiner pursuant to the mandatory provisions of � 1104(c)(2) of the Bankruptcy Code in these types of cases is practically a certainty. Enron.On Feb. 21, 2002, the U.S. Bankruptcy Court for the Southern District of New York (Gonzalez, J.), sua sponte, signed an order pursuant to �� 105 and 1104 of the code directing the appointment of an examiner in the Chapter 11 case of Enron North America Corp. (ENA), Enron Corp.’s largest subsidiary. On March 6, 2002, Judge Gonzalez signed an order defining the duties of the ENA examiner. That order provides that the ENA examiner shall: (i) have the duties, powers and responsibilities of an examiner under � 1106(b)of the Bankruptcy Code provided, however, that the scope of the ENA examiner’s duties, unless expanded or limited by further order of the court, shall be limited to the preparation of a report, including a recommendation regarding the issues concerning ENA’s continued participation in Enron Corp.’s centralized cash management system and the allocation of certain overhead costs to ENA; (ii) participate in all meetings of Enron Corp.’s cash management and risk assessment committees relevant to the assets and cash of ENA; (iii) immediately report to the court any expenditure that he deems to be improper; (iv) file with the court a weekly list of all deposits and disbursements made into and out of certain accounts; (v) be entitled to conduct expedited discovery and compel the production of documents from any Enron debtor or subsidiary of an Enron debtor, and have the power to issue subpoenas seeking documents and/or information; and (vi) file with the court a written report regarding the status of ENA cash, including gross and net collections and expenditures, and the status of ENA assets and liabilities. These duties appear to be entirely consistent with the traditional duties of the examiner to investigate and then report to the bankruptcy court. [FOOTNOTE 7]However, on April 24, 2002, Judge Gonzalez signed an order which, among other things, further expanded the ENA examiner’s role to serve as a facilitator of a Chapter 11 plan in the ENA Chapter 11 case. Thus, the ENA examiner’s appointment spans the traditional investigative and reporting role and the expanding role as facilitator of a plan of reorganization. WorldCom.On July 22, 2002, the U.S. Bankruptcy Court for the Southern District of New York (Gonzalez, J.), upon motion of the U.S. Trustee, signed an order in the WorldCom, Inc., et al. Chapter 11 cases appointing an examiner pursuant to � 1104(c)(2) of the Bankruptcy Code. As has been well-documented, and as set forth in the Trustee’s motion, shortly prior to its Chapter 11 filing, WorldCom Inc. (i) confirmed that its financial statements over a 15-month period improperly stated certain line costs (i.e., monies paid to other communications companies to use their networks) as capital investments in the approximate amount of $3.8 billion, and (ii) acknowledged material deficiencies in earlier financial statements for 1999 and 2000. Also, prior to WorldCom’s Chapter 11 filing, the SEC commenced a civil fraud action in the U.S. District Court for the Southern District of New York charging WorldCom Inc. with various violations of the federal securities laws. Judge Gonzalez directed the examiner to investigate any allegations of fraud, dishonesty, incompetence, misconduct, mismanagement or irregularity in the arrangement of the affairs of any of the WorldCom debtors by current or former management, including, but not limited to, issues of accounting irregularities. He further directed the examiner, to the extent necessary in light of the ongoing efforts of the WorldCom debtors and the corporate monitor appointed by order of the U.S. District Court for the Southern District of New York, to oversee the debtors’ affairs to the extent necessary to preserve all of their records that may be necessary to assist the examiner in performing his duties or for any lawful investigation by any agency or state or federal government. Although the WorldCom examiner thus far has been asked to perform only the traditional investigative and reporting function, it would hardly be surprising if, given the magnitude and complexity of the WorldCom Chapter 11 cases, his duties ultimately were expanded to include assisting the bankruptcy court in other matters and participation in the plan process. Global Crossing.The appointment of an examiner in the Global Crossing Ltd. et al. Chapter 11 cases appears imminent. Upon agreement of Global Crossing Ltd., et al., their Creditors’ Committee and the U.S. Trustee, Global Crossing has submitted a proposed order to the U.S. Bankruptcy Court for the Southern District of New York for the appointment of an examiner to perform an examination ” … limited to addressing the financial statements of Global Crossing Ltd. and other companies within its control … to (i) determine whether any restatements or adjustments thereof are required; (ii) review the financial statements … for the year ended December 31, 2001; (iii) issue an audit opinion … with respect thereto; and (iv) issue a report regarding its findings … “ The proposed order specifically acknowledges that the examiner would be an officer of the bankruptcy court whose responsibilities would not be directed or limited by Global Crossing’s audit committee or special committee on accounting matters. Thus, at least so far in this case, the examiner’s duties may be limited to the traditional roles of investigation and reporting. CONCLUSION Bankruptcy courts appear to be appointing examiners in Chapter 11 cases with increasing frequency. In some instances, it is mandatory, as many debtors’ public debt far exceed the $5 million threshold requiring the appointment. In others, the appointment is discretionary only, as the bankruptcy court may deem an examiner’s appointment as “in the interests of creditors, any equity security holders, and other interests of the estate.” 11 U.S.C. � 1104(c)(1). While examiners’ duties have traditionally been limited in scope to the investigation of the debtor and reporting to the bankruptcy court, more and more examiners are appointed with “expanded powers” such as to serve as plan facilitators. While the appointment of examiners with expanded powers may be a creative, efficient and valuable vehicle to foster a reorganization, it gives rise to the question of whether the examiner should be regarded as a fiduciary with duties not only to the bankruptcy court, but also to the debtor’s estate and creditors. Historically, the examiner served as an instrument to assist the bankruptcy court, as a court of equity, in administering estates. As an instrument of the bankruptcy court, the examiner’s sole or primary duty was to investigate and then report back to the court. However, since an examiner’s duties often have been expanded to include, for example, the prosecution of estate causes of action and participation in the plan process, the examiner would also seem to be acting in a fiduciary capacity to the debtor’s estate and creditors, rather than as a mere instrumentality of the bankruptcy court. Edward J. LoBello is a partner, and Craig A. Damast is a senior associate, at Blank Rome Tenzer Greenblatt ( www.blankrome.com). ::::FOOTNOTES:::: FN 1 See11 U.S.C. �� 1106(b), 1106(a)(3) and 1106(a)(4). FN 2 Patton’s Busy Bee Disposal, 182 B.R. at 684. FN 3 In re Public Service Company of New Hampshire, 99 B.R. 177, 182-83 (Bankr. D. N.H. 1989). FN 4 In re John Peterson Motors, Inc., 47 B.R. 551, 553-54 (Bankr. D. Minn. 1985). FN 5 In re Carnegie Intern. Corp., 51 B.R. 252, 254-56 (Bankr. S.D. Ind. 1984). FN 6 In re Great Barrington Fair and Amusement, Inc., 53 B.R. 241, 244 (Bankr. D. Mass. 1985). FN 7An examiner has also been appointed in the Enron Corp. Chapter 11 case to investigate and report on certain specified issues.

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