“Facilitate” Role Of Subchapter V Trustees

11 U.S.C. Sec. 1183(b)(7) — Duty to facilitate

By: Donald L Swanson

What follows is a script (more or less) of a portion of a seminar presentation I recently gave.

Duty to “Facilitate”

Every Subchapter V trustee has a statutory duty to “facilitate the development of a consensual plan of reorganization.”  This is a brand-new duty: it’s never existed before.

This duty is described as the trustee’s “principal duty” and carries a general obligation to help make the case work.

It is a mediator-ish duty.  It’s a third-person helping disputing parties find a consensual solution to a dispute.  That’s what mediator’s do!

Initial Facilitation Meeting

One formal way facilitation happens is an initial Zoom meeting that occurs immediately following the § 341 meeting.  It is a time for debtor’s counsel to explain the strategy and plan to creditors, with creditors then providing feedback, and discussions ensue on what a consensual arrangement might look like. 

We encourage debtors and creditors to appear in the Zoom meeting, along with their attorneys.  They don’t need to say anything, but it’s helpful for them to see and hear what’s happening.

This facilitation meeting typically ranges in length from 15 minutes to an hour.  But unlike a typical mediation, the goal is simply to make progress on identifying issues and concerns and commonalities—not to achieve a final resolution of disputes.

After that initial meeting, facilitation typically happens by email exchanges and telephone calls—either with all sides participating, or independently with the trustee.

Additional Zoom meetings might be helpful as a contested hearings and trials approach.

Working well

The collective experience, across the U.S., thus far, is that facilitation efforts are successful at achieving consensual or unopposed plan confirmations.  And that’s with a bunch of new trustees that are learning as we go.  Imagine how effective this will be once trustees, collectively, become experienced.

Here’s predicting that this facilitation role will expand, because of its effectiveness, beyond Subchapter V into other contexts.

Here’s one reason why it works so well: all studies on the optimum time for mediation reach this conclusion—it’s at the beginning of a case.  That’s because every court ruling on a contested motion, whether it’s to dismiss or a discovery spat, entrenches the parties further in their positions and reduces the odds of settlement.

Subchapter V inserts the trustee in a mediator-ish role at the earliest stages of the case, with a duty to proactively pursue resolution of plan-related disputes.

Survey results

Additional evidence of facilitation effectiveness is this: at the turn of the 2020-2021 calendar year, the Mediation Committee of the American Bankruptcy Institute did a survey of bankruptcy practitioners on their experiences with the facilitation role in Subchapter V.  The survey results are published as an article in the Committee’s Summer Newsletter and are reprinted here.

Facilitation and Confidentiality

I like to say that a Subchapter V trustee’s facilitation role is mediator-“ish.” That’s because the trustee has other duties, like objecting to claims or objecting to a discharge, in appropriate circumstances.  So, the trustee can’t be a true mediator, because a mediator must not have a dog in the hunt. 

These other duties create a “minor glitch” in the mediator-ish role of facilitation.  The glitch is this: since the Subchapter V trustee has a dog in the hunt, the expectation of mediation-like confidentiality cannot exist.

–Rule 408

Instead of mediation confidentiality, the protection parties have, in a facilitation context, is the negotiation rule that’s always existed: Fed.Ev.R. 408.  We’ve all seen, and done, this preface to negotiation communications: “Rule 408 applies.”  Well, Rule 408 governs facilitation communications in precisely the same way—it’s the same thing: settlement negotiations.

This is not a problem, nor is it an impediment, to facilitation.  It is merely something that people involved in the process need to know about and to then conduct themselves accordingly.

–Agree to more confidentiality

Parties can always agree to more confidentiality.  For example, when someone says, “Can I tell you something in confidence?”  My answer is always, “Sure,” and I will honor that assurance—whether it is in writing or not.  And my bent in other contexts is to hold in confidence whatever is said to me in private.  The Subchapter V context is no exception.

–Good judgment required

But here’s the deal: please don’t confess to a Subchapter V trustee that your client has committed a crime or that your client has been committing perjury—even if you preface the confession with, “Can I tell you something in confidence” and get a “Sure” in response. 

What is a Subchapter V trustee supposed to do with that?!  Ignore it?  Pretend it wasn’t said?


the Subchapter V facilitation role is working well.

And good judgment is, as always, required of everyone.

** If you find this article of value, please feel free to share. If you’d like to discuss, let me know.


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