Role of a Chapter 11 Trustee Appointed by the US Trustee’s Office

There are statutory as well as general duties a Trustee is obligated to fulfill once appointed to a case by the US Trustee’s Office. Remembering a case under Chapter 11 is a “reorganization”, a Chapter 11 Trustee is a fiduciary charged with protecting the interests in the bankruptcy estate for all parties, including all classes of creditors and the debtor. The Trustee must protect and preserve estate assets. Further, under 11 U.S.C. Section 1106(a)(3) “A Trustee shall…..investigate the acts, conduct, assets, liabilities and financial condition of the debtor, the operation of the debtor’s business and desirability of the continuance of such business…”

A question we hear all the time is “what exactly is the Trustee going to do?” Given the charge from the Court, the first thing is to gain immediate control of the operations and take control of the cash and bank accounts and ensure that proper insurance coverage is in place. Next, the Trustee must discern and decide who or what is helpful and who or what is not. With these actions in place, it is incumbent on the Trustee to bring stabilization to what is likely an unstable picture, and bring immediate action to turn the operations around.

The ultimate goal is to file a Plan which will allow the debtor to emerge from bankruptcy in a profitable, streamlined manner while securing the largest possible return for creditors. Often times, creditors do not see this as a win-win outcome. Without a Trustee, it would be possible for the debtor to completely cease operations and the creditor to remain unpaid. In an ideal situation, creditors would receive 100% of their investments. This does happen, but is the exception rather than the rule. Having a Trustee in place ensures creditors receive the maximum possible return from the given situation.

Written by: Susan Sprehn