Committee to Hold Joint Meeting with Finance & Banking Committee at 2004 Winter Leadership Conference
“Chapeau, Sombrero or Fedora: A Lively Discussion About What Hats Investment Bankers, CRO/CRAs and Turnaround Consultants Are and Should Be Wearing”
The Investment Banking and Finance & Banking Committees will hold a joint meeting on Saturday, Dec. 4, at the 2004 Winter Leadership Conference. The committees will present “Chapeau, Sombrero or Fedora: A Lively Discussion About What Hats Investment Bankers, CRO/CRAs and Turnaround Consultants Are and Should Be Wearing.” How do you determine whether you have the right professional for the job? This panel will address the distinction between financial advisory professionals hired, or recommended by, financial institutions and the roles they play at various points throughout a chapter 11 proceeding. Particular attention will be focused on the inherent conflicts that arise among these professionals as the lines among their service offerings begin to blur. Peter Kaufman of Gordian Group LLC will moderate, and the panelists will include James Decker from Houlihan Lokey and Michael Epstein from TRG.
Disinterestedness and Disclosure in Retention of Professionals
Should Investment Bankers Be Held to the Same Standards as Attorneys?
by Judith Elkin and Amy Walters, Haynes and Boone, LLP
Although, historically, the professionals involved in a chapter 11 case consisted of primarily attorneys and accountants, today investment bankers, turnaround specialists and financial consultants are necessary players in a chapter 11 case. And not just in the mega-cases anymore. These types of professionals are regularly employed in small and mid-size cases as well. The provisions of the Bankruptcy Code governing retention of professionals, however, impose a relatively high standard, that of “disinterestedness,” in order for a professional to be retained. These provisions were drafted based on the practices and rules of ethics that govern attorneys. Accountants, like attorneys, have professional guidelines to follow in their practice as well. But what about investment bankers? Clearly there is no “Investment Banker Code of Ethics,” so in the bankruptcy context, should investment bankers be held to the same ethical standards as attorneys and accountants?
Presented at the 2004 Investment Banking Program
The Farmland Industries Decisions: Impact on the Retention and Payment of Investment Bankers in Chapter 11 Cases
by Paul Steven Singerman and Adam D. Marshall; Berger Singerman, P.A., Business Reorganization Team, Miami
Investment bankers and other financial advisors are retained and employed by chapter 11 debtors and statutorily appointed committees to assist in the maximization of the value of the estates’ assets by providing financial advisory services, marketing and sale efforts and debt and equity financing initiatives. Investment bankers, as professionals, must be retained pursuant to applicable provisions of the Bankruptcy Code and all terms of the proposed retention are subject to court approval. Court approval of fees and expenses is also required. Typically, fees and expenses for professionals retained by the trustee, the debtor or a committee are afforded administrative expense status and are paid from general estate funds.
Recently, however, the bankruptcy court presiding over the Farmland Industries, Inc. et. al. cases held that certain fees of professionals were payable out of a specific creditor constituency’s recovery and not out of general estate funds. In re Farmland Industries, Inc., 286 B.R. 895 (Bankr. W.D. Mo. 2002; hereinafter the Farmland Opinion). The bankruptcy court was affirmed on appeal by the Bankruptcy Appellate Panel for the Eighth Circuit. In re Farmland Industries, Inc., 296 B.R. 188 (8th Cir. BAP 2003; hereinafter, the BAP Opinion). This paper will briefly address the background, circumstances and ramifications of the Farmland decisions.
In the Farmland cases, there were two competing creditor constituencies—general unsecured creditors (GUCs) and bondholders. It is unclear from the opinions the precise allocation of debt as between the GUCs and the bondholders. As will be illustrated below, the outcome turned on the existence of competing creditor constituencies.
Presented at the 2004 Investment Banking Program
Deepening Insolvency: Developing Theory and Defenses to Liability
Carole Neville, Sonnenschein Nath & Rosenthal LLP, New York
In recent years, the doctrine of deepening insolvency has garnered greater recognition by some American courts. As the theory has been developed to date by those courts, deepening insolvency is an independent cause of action under which a failed company or its representatives may recover damages against third parties (typically officers, directors, professionals and even lenders) for fraudulently or negligently prolonging the company’s fiscal life while its assets continue to diminish and its exposure to ordinary course creditors increases. Deepening insolvency claims are often asserted in conjunction with: (i) claims of breach of fiduciary duty to creditors while the company is either insolvent or in the “vicinity” or “zone” of insolvency; (ii) claims of aiding and abetting breach(es) of fiduciary duty; (iii) fraud; (iv) professional malpractice; or (v) negligence. In some jurisdictions, deepening insolvency is an acknowledged measure of damages for one or another of these causes of action.