Bankruptcy Law

US Trustees at Odds with Reorganizing Companies and Lawyers Seeking Big Fees

Companies seeking Chapter 11 protection are increasingly at odds with the Justice Department’s U.S. Trustee Program, particularly on issues of venue and executive bonuses.

The director of the program, Clifford White III, has become an activist in policing Chapter 11 cases, the Wall Street Journal (sub. req.) reports. “Restructuring professionals say companies in bankruptcy court are facing off with increasingly vigilant Justice Department watchdogs whose zeal for enforcing the law may threaten the survival of the companies the bankruptcy system is set up to save,” the story says.

Companies often choose a venue they perceive to be friendly to their interests, but trustees are sometimes voicing objections, the story says. Companies propose bonuses to reward executives for successful restructurings, but trustees say incentives that are easily achieved amount to illegal retention bonuses.

Last fall, White also targeted big attorney fees, the story says. He talked about his concerns in a June speech. “Public confidence in the bankruptcy system is sometimes shaken by reports of fees that run into the hundreds of millions of dollars in cases in which employees have lost their jobs, pension-fund investors have largely been wiped out, and creditors have been paid pennies on each dollar of debt,” he said.

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