Retention and Compensation of Professionals in Bankruptcy

Among the U.S. Trustee Program’s top priorities and statutory responsibilities in chapter 11 is reviewing requests to retain and pay professionals from the bankruptcy estate, including attorneys, accountants, financial advisors, turnaround specialists, and other professionals.

Retention:

Sections 327, 1103, and 1114 of the Bankruptcy Code authorize the employment of professionals in a chapter 11 case, and Bankruptcy Rule 2014 requires that a professional seeking employment under those sections file a verified statement of all connections with parties in interest. The retention and disclosure process is designed to ensure public confidence in the integrity and efficiency of the bankruptcy system by determining whether professionals can render undivided loyalty and untainted advice and by limiting the retention of professionals to those instances where the services are necessary. Absent complete, clear, and public disclosure of all connections, a court cannot determine whether a professional satisfies the rigorous statutory standard for employment.

In December 2019, the U.S. Trustee Program issued guidance to its staff establishing principles to apply in reviewing the adequacy of disclosures by professionals seeking court approval for employment in chapter 11 bankruptcy cases and in determining whether to object. This internal guidance is essential to ensuring consistent enforcement practices and is available to view here. This memorandum is an internal directive to guide U.S. Trustee Program personnel in carrying out their duties, but the ultimate determination on the obligations of professionals who seek employment under sections 327, 1103, and 1114 and make disclosures under Rule 2014 resides solely with the court.

Compensation:

U.S. Trustees also have an express statutory responsibility to review applications for professional compensation. In the Bankruptcy Reform Act of 1994, Congress directed the U.S. Trustee Program to establish uniform guidelines for reviewing fee applications to provide consistency in the fee application preparation and review process.

In early 1996, the Program published fee guidelines to assist the court, the U.S. Trustees, and interested parties in evaluating the reasonableness of fee requests. The 1996 guidelines include disclosure requirements, task-based billing requirements, and standards for reimbursement for certain expenses. In 2013, the Program promulgated fee guidelines governing the review of applications for compensation filed by attorneys in larger chapter 11 cases.

Further information on the fee guidelines are available on the Fee Guidelines page.

Developing Case Law:

As in other areas, the Program’s work policing professional retention and compensation extends beyond the bankruptcy courts to appeals at every level, including bankruptcy appellate panels, district courts, courts of appeals, and the U.S. Supreme Court. See, e.g., Baker Botts LLP v. ASARCO LLC, 135 S. Ct. 2158 (2015); Lamie v. United States Trustee, 540 U.S. 546 (2004); In re Woerner, 783 F.3d 266 (5th Cir. 2015) (en banc); and Davis v. Elliot Management Corp. (In re Lehman Bros. Holdings, Inc.), 508 B.R. 283 (S.D.N.Y. 2014), vacating In re Lehman Bros. Holdings, Inc., 487 B.R. 181 (Bankr. S.D.N.Y. 2013). Through its appellate practice, the U.S. Trustee Program seeks to clarify the law, produce consistency within the bankruptcy system, and preserve the integrity of the bankruptcy process.

Questions and answers regarding the implication of the ASARCO LLC decision mentioned above are available on the Frequently Asked Questions page.