Allegations of impropriety by a bankrupt company’s management can fuel heated litigation in bankruptcy cases including requests to appoint an examiner to investigate causes of action. As contested as an examiner’s appointment can be, often a more intense conflict results if an examiner finds that viable claims exist. Deciding which party should pursue these claims the debtor, a creditors’ committee, an equity holders’ committee or individual creditors provides fertile ground for litigation. Frequently, the claims represent a significant or sole means of recovery for constituent classes. Several recent cases highlight the tension among competing stakeholders not only to wrest control of those claims, but ultimately to influence the trajectory of the entire bankruptcy case.
Appointment of an examiner is not routine and generally occurs when allegations exist concerning fraud, incompetence or mismanagement of a debtor. 11 U.S.C. 1104(a)(1),(c). An examiner’s investigatory powers usually focus on impropriety involving a debtor’s management, but can be expanded “as is appropriate” to probe other aspects of the debtor’s business. See 11 U.S.C. 1104(c).
