If a trustee is appointed in a Chapter 11 case, he becomes responsible for the management of the debtor's business affairs, and the filing of the required reports and tax returns. The debtor has a duty to cooperate so that the trustee can carry out his duties. Under Section 1106 of the Bankruptcy Code, the trustee's duties also include the filing of a Chapter 11 plan "as soon as practicable", or in the alternative to report to the court why such a plan is not feasible and whether the trustee recommends that the case be converted to Chapter 7 bankruptcy or dismissed. At any time prior to confirmation of a plan, the debtor, creditor, the U.S. Trustee, or other interested party, can ask that the trusteeship be terminated and the debtor restored to DIP status.

Strategies for the Debtor

Automatic Stay, - Automatically stops most creditor action against the debtor "Lien-stripping" - Generally available in Chapters 11 and 13, "Use of "Avoiding Powers" - May let the debtor sue creditors and "undo" certain harmful transactions "Race to the Courthouse" - A bankruptcy filing allows assets to be sold by the debtor or trustee, over a reasonable period of time

Role of the Office of the U.S. Trustee

      The role of the Office of the U.S. Trustee ("OUST") is substantial in Chapter 11 cases. The Office of the U.S. Trustee is staffed by an Assistant U.S. Trustee, with support staff including lawyers, accountants, and paralegals. A wide variety of tasks are delegated to the office. They include the following:

Monitoring the debtor's progress and reviewing the monthly operating reports Conducting the meeting of creditors, usually at the local U.S. Federal Building, and examines the debtor under oath as to debtor's assets and liabilities, acts, conduct, and the administration of the case Establishing guidelines for the award of compensation of professionals involved in Chapter 11 cases, including lawyers, accountants, turnaround specialists, real estate brokers, and others Scrutinizing applications for compensation filed by the case professionals, to ensure that the fees and expenses are reasonable and in compliance with the guidelines Making recommendations to the court as to the viability of continued Chapter 11 operations and the establishment of timelines for progress in Chapter 11 cases Supervising "housekeeping" matters in Chapter 11, including making sure that the debtor has closed all pre-petition bank accounts and opened a debtor in possession account, and ensuring that the debtor remains current in payment of post-bankruptcy bills including taxes Moving for the appointment of a trustee or examiner under Bankruptcy Code Section 1104(e), upon discovery of evidence that any of the parties in control of the debtor "participated in actual fraud, dishonesty, or criminal conduct in the management of the debtor or the debtor's financial reporting".

Fees Paid to Office of United States Trustee

      To assist in the funding of the operations of the OUST, the DIP is required to pay certain quarterly fees. These fees are set forth in 28 U.S.C. Section 1930(a)(6), and are subject to periodic revision. The fees are due at the end of the month following each quarter of Chapter 11 operations. These fees range anywhere from $ 350 to $ 10,000 per quarter, depending on the amount of disbursements during the quarter. If the DIP does not remain current in the payment of these fees, the OUST can move the Court for an order dismissing the case or converting it to Chapter 7. The fees are payable up to the date of the closing of the case.

Written by Henry Rendler