Does A Subchapter V Trustee Have A Duty To “Monitor” Debtor’s Plan Compliance?

Monitoring? (photo by Marilyn Swanson)

By: Donald L Swanson

Question:  Does a Subchapter V trustee have a duty to “monitor” debtor’s compliance with a confirmed plan?

Answer:  “No.”

I’ll try to explain . . . and to add a suggestion on what Subchapter V trustees might do, instead.

Consensual Confirmation

When a plan is confirmed under § 1191(a)—i.e., as a “consensual” plan, the role of the trustee terminates upon “substantial consummation”: 

  • “Substantial consummation” (defined in § 1101(2)) exists when (i) plan payments “commence,” (ii) plan transfers happen, and (iii) debtor is running its business; and
  • Those three things typically happen quickly after confirmation.

Once those three things happen, the trustee’s role “shall terminate” (§ 1183(c)(1)). In most cases, this termination will happen soon after confirmation. 

Thereafter, the Subchapter V trustee has no further responsibility in the case—including no duty to “monitor” debtor’s plan compliance.

Non-Consensual Confirmation—When Trustee is a Disbursing Agent   

When the Subchapter V trustee serves as debtor’s disbursing agent, the trustee’s post-confirmation role is simple and clear, according to the Handbook for Small Business Chapter 11 Subchapter V Trustees (at 3-15 & -16):

  • “the trustee will collect the plan payments and distribute them to creditors”; and
  • “Upon completion of all plan payments, . . . submit their final report and account of their administration of the estate in accordance with § 1183(b)(1), which incorporates § 704(a)(9).”

In collecting and distributing payments required by the confirmed plan, the trustee will know whether payments are current or not.  But that is not the same as an independent duty to “monitor” debtor’s compliance with the confirmed plan.

Non-Consensual Confirmation—When Trustee is NOT a Disbursing Agent

Under a non-consensual confirmation in which debtor serves as its own disbursing agent, the trustee handles no money but still remains in place and remains responsible for fulfilling trustee duties.

Still . . . under such circumstances, the trustee has no duty to “monitor” debtor’s compliance with the plan. 

The trustee’s only post-confirmation statutory duties are:

  • To assure that debtor “commences” payments under the confirmed plan (§ 1183(b)(4));
  • To participate at a hearing on modification of the plan “after confirmation” (§ 1183(b)(3)(C));
  • To provide information requested by a party in interest (§ 1183(b)(1) & § 704(a)(7));  
  • To file post-confirmation reports “as are necessary or as the court orders” (§ 1183(b)(2) & § 1106(a)(7)); and
  • To file a final report (§ 1183(b)(1) & § 704(a)(9)).

In such list, there is no express duty to “monitor” debtor’s plan compliance.  But these two duties might be described as monitor-like:

  • Providing information to requesting parties—presumably, parties concerned by noncompliance will inquire of the Trustee, who obtains information from debtor and then responds to inquirer; and
  • Reporting to the court, if needed.

Note: § 1183(b) duties are expressed with these words: “trustee shall.” There is no such word as “including.”

Suggestion—What a Trustee Might Require

The lack of an express post-confirmation duty to “monitor” is explainable by the Subchapter V goal of efficiency to keep costs down.

Accordingly, the statutory duties and efficiency goal lead to the following suggestion for what a Subchapter V trustee might do:

That all monitor-like efforts be limited to requiring the following from debtor:

  • An initial report as soon as payments commence under the plan—to satisfy § 1183(b)(4);
  • Further reports, upon Trustee’s request, of information responding to party requests—so the Trustee can satisfy § 1183(b)(1) & § 704(a)(7); and
  • A final report at end of the case—so the Trustee can satisfy § 1183(b)(1) & § 704(a)(9)?

Conclusion

The post-confirmation role of a Subchapter V trustee:

  • might be very short, after a consensual confirmation; but
  • will last the full 3- to 5-years term of the plan, in a non-consensual confirmation.

An express statutory duty to “monitor” debtor’s plan compliance does not exist.

The actual post-confirmation duties of a Subchapter V trustee are discussed above, along with a suggestion on how monitor-like duties might be efficiently satisfied.

** 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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