Appointment of an Examiner in a Chapter 11 Case

In a Chapter 11 case in which a trustee has not been appointed, the bankruptcy court sometimes will order the appointment of a lawyer to be an examiner, prior to confirmation of a plan, to investigate any charges of fraud, dishonesty, incompetence, or mismanagement on the part of the bankruptcy debtor's present or former management.

The appointment is made by the United States Attorney, who selects a disinterested lawyer other than himself. The debtor in possession, however, retains the property of the bankruptcy estate and continues to operate the business.

a. Reasons for appointment: When the appointment of an examiner is requested by a party in interest or the United States attorney, the bankruptcy court (after notice and a hearing) must order that an examiner be appointed if the debtor's fixed, liquidated, unsecured debts exceed $5 million, excluding debts for goods, services, or taxes, and any debts owed to an insider. The existence of large debenture debt is a good example of such a circumstance. The bankruptcy court will also order the appointment of an examiner if the appointment is in the best interests of creditors, equity security holders, and the estate.

b. Duties of examiner: An examiner's duties include the following:

(1) To investigate the bankruptcy debtor's conduct, financial condition, and business operations, as well as the advisability of continuing the debtor's business

(2) To file a report of the investigation, relating any facts evidencing fraud, dishonesty, incompetence, misconduct, or mismanagement, and to send a copy of the findings to any creditors' committee or equity security holders' committee

(3) Any other responsibilities of the trustee that the judge directs the bankruptcy debtor in possession not to perform