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The receiver is thinking of filing a bankruptcy petition for the corporation. As counsel, if this happens, are my fees in jeopardy? By Davidson, Peter* Q: I am counsel to a receiver for a corporation and things aren’t going too well. The receiver is thinking of filing a bankruptcy petition for the corporation. If this happens, are my fees in jeopardy? A: They might be. Generally when a bankruptcy petition is filed for an
entity in receivership, the receiver becomes a “custodian” under the
Bankruptcy Code. 11 U.S.C. §101(11). As a custodian the receiver has
certain duties as set forth in 11 U.S.C. §543, including delivering
property in his or her possession, custody or control to the trustee and
filing an accounting of any property that had come into his or her
possession. In order to protect the receiver, should the entity he or she
is receiver of file bankruptcy, 11 U.S.C. §543(c) provides the court shall
“provide for the payment of reasonable compensation for services rendered
and costs and expenses incurred by such custodian.” These fees and
expenses are given administrative expense status under 11 U.S.C.
§503(3)(E). Section 503(4) also provides administrative expense status for
reasonable compensation of “an attorney or an accountant” of a custodian
“superseded under section 543”. Therefore, if the entity under the
receiver’s possession or control files bankruptcy, or an involuntary
bankruptcy is filed against it, the receiver, his attorneys and
accountants can be paid in the bankruptcy case and their fees will have
administrative expense status. This means they get paid on a par with the
bankruptcy trustee and his professionals and before unsecured creditors
are paid. A problem may arise, however, if it is the receiver that files
the bankruptcy petition. In a recent case in Texas, In re Statepark
Building Group, Ltd., et al., _____ B.R. ___, 2005 Bankr. Lexis 1248 (Bankr.
N.D. Tex. 2005), the bankruptcy court denied administrative expense status
for the receiver’s fees and that of his attorneys because it was the
receiver who commenced the bankruptcy case. The court held that where the
receiver commences the bankruptcy case he is not “superseded under section
543”. In order to be superseded, the court felt the receiver has to be
forced out of his role and that only occurs if the debtor or creditors
commence the bankruptcy case. In a further backhand slap, the court stated
that even if the receiver and counsel were entitled to administrative
claims the court would reduce them substantially because if bankruptcy was
the best mechanism to realize value for creditors, the receiver should
have realized that and filed the bankruptcy case before incurring
substantial expenses. The court did allow the receiver and his counsel to
have an unsecured claim for their fees. |