Opinion ID: 782113
Heading Depth: 3
Heading Rank: 1

Heading: Appointment of a bankruptcy trustee

Text: 111 Lincolnshire first argues that, although the usual Chapter 11 case proceeds without a bankruptcy trustee, a creditors' committee can move to appoint one pursuant to § 1104. That provision allows any party in interest (including a creditors' committee) to request appointment of a trustee for cause, or if the appointment would be in the interests of creditors. 11 U.S.C. § 1104(a). Cause to appoint a trustee may include fraud, dishonesty, incompetence, or gross mismanagement ... either before or after commencement of the case. Id. § 1104(a)(1). Lincolnshire posits that a trustee's independent nature would allow it to pursue avoidance claims without the conflicts of interest that can affect debtors-in-possession. 112 Amici Law Professors aptly respond that disallowing derivative suits and forcing creditors' committees to move to appoint trustees would amount to replac[ing] the scalpel of derivative suit with a chainsaw. (Law Professors' Brief at 13.) Appointing a trustee in a Chapter 11 case is an extraordinary remedy, 7 Collier on Bankruptcy ¶ 11402[1] (15th rev. ed. 1998), and there is a corresponding strong presumption that the debtor should be permitted to remain in possession. In re Marvel Entertainment Group, Inc., 140 F.3d 463, 471 (3d Cir.1998). The problem is that appointing a trustee amounts to replacing much of a debtor's high-level management, and that creates immense costs in two ways. First, there is a statutory fee (which can be substantial) to which trustees are entitled for their services. See 11 U.S.C. §§ 326(a) (setting forth fee schedule), 330(a) (setting forth trustee's right to compensation); cf. 11 U.S.C. § 1107(a) (providing that debtors-in-possession are not entitled to statutory trustee's fees). 9 More important, however, is the cost implicit in replacing current management with a team that is less familiar with the debtor specifically and its market generally. The idea that existing management is best positioned to rescue a debtor from bankruptcy is precisely the reason why the appointment of a trustee is exceptional in Chapter 11 reorganizations, but occurs immediately in Chapter 7 liquidations. See Kenneth N. Klee & K. John Shaffer, Creditors' Committees Under Chapter 11 of the Bankruptcy Code, 44 S.C. L. Rev. 995, 1045, 1049 (1993) (observing generally that the incremental costs of a trustee usually outweigh[] the benefits, and that maximization of value rarely lies down this path.). 113 In short, we believe that appointing a trustee is too drastic a step to constitute a serious alternative to allowing derivative suits by creditors' committees. Indeed, because much of Chapter 11 is premised on allowing current management to remain in control of the debtor, it is unlikely that Congress intended to force a court to displace that management in the relatively commonplace event that a debtor makes a questionable decision not to prosecute a fraudulent avoidance claim. 114