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Chapter 11
Chapter 11 Debtor in Possession
Unless a trustee is appointed in the case (see below),
the bankruptcy debtor remains in possession of the property of the estate and
continues to operate the business unless the bankruptcy court orders otherwise. The
debtor in possession has all of the rights, powers, and duties of a
trustee, except the right to compensation and the duty to investigate
the bankruptcy debtor.
Business Judgment Rule
In operating the business, the bankruptcy debtor has the authority to make reasonable business judgments concerning the ordinary affairs of the debtor, and generally the court will not disturb these decisions absent "allegations of, and a real potential for, abuse by corporate insiders." Advice of a lawyer is not a defense to a claim of mismanagement.Employment of Professionals
Any attorney, accountant, lawyer, or other professional employed by the bankruptcy debtor must be a disinterested person and cannot hold or represent any interest that is adverse to the estate. However, a lawyer or attorney is not disqualified for employment solely because she was employed by or represented the debtor prior to the commencement of the bankruptcy case.Appointment of a Trustee
Since the bankruptcy debtor usually is considered to be the most appropriate person to operate the particular business, it is viewed as "the exception, rather than the rule" for a trustee to be appointed in a Chapter 11 bankruptcy case. In fact, there is a presumption that the bankruptcy debtor should be allowed to remain in possession.
However, after the filing of the petition and prior, to
confirmation of
a plan, a party in interest or the United States trustee may request the
appointment of a trustee, either for cause or in the interest of
creditors, equity security holders, and the estate. The
bankruptcy court generally
requires evidence showing more than simple mismanagement. Some courts
have used a cost-benefit analysis, taking into account the
administrative expenses that are likely to ensue from the appointment of
a trustee.
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