James R. Irving Discusses CROs in the Law Journal Newsletters
A decision by Judge Mary P. Gorman of the United States Bankruptcy Court for the Central District of Illinois in ln re Copenhaver, Inc., Chapter 11 case no. 13-72052, is part of a growing trend of opinions and orders around the country authorizing a debtor to retain a chief restructuring officer (CRO) under sections of 105(a) and 363(b) of the Bankruptcy Code, rather than section 372(a) of the Bankruptcy Code. Firm attorney James R. Irving discussed Judge Gorman’s recent decision in the August 2014 issue of The Bankruptcy Strategist.
According to Irving, that United States Bankruptcy Courts outside of the Southern District of New York and the District of Delaware are willing to permit debtors to retain CROs under sections of 105(a) and 363(b) of the Bankruptcy Code, but that certain restrictions on CRO retention regarding fees, disclosure and potentially disinterestedness, remain.
In the case, on October 28, 2013, the Debtor filed its voluntary bankruptcy petition. On December 17, 2013, the bankruptcy court then entered an order authorizing the sale of the Debtor’s “core assets.” On January 27, 2014, the Debtor filed an application to retain (the “Retention Application”) Dave Moravec as CRO under sections of 105(a) and 363(b) of the Bankruptcy Code.
On March 11, 2014, Judge Gorman denied the Retention Application without prejudice because the Debtor and Mr. Moravec refused to submit Mr. Moravec’s fees to the bankruptcy court for approval. However, Judge Gorman stated that the court would grant an amended application under sections 105(a) and 363(b) if the Debtor and Mr. Moravec agreed to submit Mr. Moravec’s fees to the bankruptcy court for approval.
Judge Gorman’s decision in Copenhaver is good news for debtors attempting to retain CROs under sections 105(a) and 363(b) of the Bankruptcy Code because it provides further precedent that retention under these sections is appropriate. Although this is uncontroversial in cases before the United States Bankruptcy Courts for the the Southern District of New York and the District of Delaware, it is valuable in other jurisdictions where few chapter 11 cases are filed and even fewer CROs are retained by the debtors.
Judge Gorman’s insistence that Mr. Moravec submit his fees to the bankruptcy court for approval is consistent with prior orders of other courts, which permitted debtors to retain CROs pursuant to sections 105(a) and 363(b) so long as the CROs filed staffing reports or otherwise submitted their fees to the court for review. According to Irving, the decision is a helpful reminder against the dangers of overreaching.