“We can’t see what the Subchapter V trustees are doing, so we don’t have an opinion on their effectiveness.”
–This is the response of a couple bankruptcy judges, when asked about the effectiveness of Subchapter V trustees in performing the statutory “facilitate a consensual plan” duty.
Startled! That’s my initial reaction, upon hearing the judges’ response.
But the response actually makes sense:
- Nearly everything a Subchapter V trustee does in facilitating a consensual plan occurs in the background; and
- Mediation is a good analogy—no one knows what goes on inside a mediation, except for the participants, and facilitation is much the same.
The reason for being startled is this:
- My experience is that Subchapter V trustees, as a group, are highly effective in fulfilling their “facilitate” role; and
- I assume everyone else sees the same thing. This assumption is, apparently, inaccurate.
Here are some reasons for thinking highly of the “facilitate” performance by Subchapter V trustees.
- My personal experiences are positive: (i) have been doing this bankruptcy gig for a long time, (ii) have experienced the bankruptcy process from nearly every angle and on behalf of all types of constituencies, and (iii) have a mediation background. So, the “facilitate” role feels natural and useful.
- Other Subchapter V trustees have significant backgrounds and experiences (whether similar to or different from mine), and I see and hear about their successful “facilitate” efforts.
- A survey of bankruptcy practitioners (conducted around the turn of the 2020/2021 calendar years) asks this question: “In what percentage of your subchapter V cases have you experienced a subchapter V trustee helping facilitate the development of a consensual plan?” 53.66% of the respondents say they’ve experienced a trustee helping to facilitate in 50% to 100% of their cases (see this article).
- A September 2021 study by the Eighth Circuit reports a Subchapter V plan confirmation rate of 50%, which rate is far beyond confirmation rates in regular Chapter 11 cases—a 2019 report, for example, references studies from 2009 and earlier showing Chapter 11 plan confirmation rates between 10% and 33% (see fn. 4 therein).
- All Subchapter V trustees are still novices in their new role, and we are learning to “facilitate” as-we-go. As Subchapter V trustees continue to gain experience in the role, their effectiveness as a group will continue to increase and improve.
Other Chapter 11 Cases
I believe the Subchapter V “facilitate” role is effective and helpful to such an extent that it should become a regular part of bankruptcy processes for all types of hotly-contested Chapter 11 cases.
Perhaps a “facilitator” could be added as a role under § 1106—trustees, examiners and facilitators?
Still . . . it’s unfortunate—and disappointing—that judges may not see, (i) the facilitation efforts that are happening behind the scenes, and (ii) the benefits such efforts provide in Subchapter V cases.
** If you find this article of value, please feel free to share. If you’d like to discuss, let me know.