Ouch! Administrative Insolvency and Disgorgement of Fees – Case Strategies
by Hon. Steven W. Rhodes
U.S. Bankruptcy Court; Detroit
Judith Greenstone Miller
Jaffe Raitt Heuer & Weiss, P.C.; Southfield, Mich.
Gary A. Wencel
Moglia Advisors; Schaumburg, Ill.
Richard S. Lauter
Levenfeld Pearlstein, LLC; Chicago
Notwithstanding the amendments to the Bankruptcy Code set forth in the Bankruptcy Abuse Prevention Consumer Protection Act of 2005 (BAPCPA), the Code provisions governing retention and compensation emerged relatively unscathed. Nevertheless, in many instances, case law continues to evolve with little clarity or predictability when it comes to these areas of concern, particularly when an estate is rendered administratively insolvent.
Read the full article. (Materials from the 2007 Central States Bankruptcy Workshop)
Protecting Professional Fees from Disgorgement: Obtaining Carve-Outs from Secured Creditors to Safeguard Against Uncertainties
by Judith Greenstone Miller
Jaffe Raitt Heuer & Weiss, P.C.; Southfield, Mich.
Professional compensation is always subject to approval, reexamination and adjustment for unreasonableness or excessiveness under 11 U.S.C. §§329 and 330. However, in recent years, some courts appear to have broadened the scope of this reexamination and adjustment when an estate becomes administratively insolvent. In Specker Motor Sales Co. v. Eisen, 393 F.3d 659 (6th Cir. 2004), the Sixth Circuit Court of Appeals ordered a debtor’s attorney to disgorge his post-petition retainer for pro rata distribution among administrative claimants after the administratively insolvent case was converted to a chapter 7. In so ruling, however, the court did not consider (a) the impact of an attorney being paid from a carve-out or by a third party, or (b) other actions an attorney may take to protect the integrity of the retainer or fees previously approved by the court and paid by the debtor prior to an estate being rendered administratively insolvent.
Read the full article. (Materials from the 2007 Central States Bankruptcy Workshop)
Disgorgement Revisited
by Judith Greenstone Miller
Jaffe Raitt Heuer & Weiss, P.C.; Southfield, Mich.
The subject of professional compensation and disgorgement, particularly in light of the Sixth Circuit Court of Appeals’ decision in Specker Motor Sales Co. v. Eisen, 393 F.3d 659 (6th Cir. 2004), has caused many courts to pause, assess and consider the impact and extent of the court’s ruling. On a simple and basis level, there is little debate over the holding of the court. Section 726(b) of the Bankruptcy Code mandates disgorgement of amounts paid to professionals during a chapter 11 proceeding when the case is subsequently rendered administratively insolvent in order to achieve a pro rata distribution among other administrative claimants in a case converted from chapter 11 to chapter 7. What is less clear, however, is whether and to what extent the manner in which the Sixth Circuit characterized the retainer received by debtor’s counsel (a post-petition retainer according to the court) impacted its ruling or its failure to consider that the attorney was a secured creditor by virtue of holding a retainer, and thus was not subject to disgorgement under §726(b).
Read the full article. (Materials from the 2007 Central States Bankruptcy Workshop)