Subchapter V Trustees: Satisfying The § 1183(b)(3) Duty To “Appear And Be Heard”

Appearing and being heard? (Photo by Marilyn Swanson)

By: Donald L Swanson

The trustee shall . . . appear and be heard at . . . any hearing that concerns . . . the value of property . . . confirmation of a plan . . . sale of property.” § 1183(b)(3) (emphasis added).

In every Subchapter V case, the trustee has a statutory duty to “appear and be heard” on certain issues. Often, a trustee can satisfy such duty, on many issues, by participating in a hearing and expressing a verbal opinion on the matter that’s before the Bankruptcy Court.

But when an important and hotly-disputed issue comes before the court on one of the subjects specified in § 1183(b)(3), how can the trustee satisfy his/her statutory duty?

Report and Recommendation

One way to satisfy the “appear and be heard” duty under § 1183(b)(3) is to prepare and file a “Report and Recommendation of Subchapter V Trustee.” Such a document is appropriate when a hearing on a § 1183(b)(3) dispute is in the offing.

A Report and Recommendation document should:

  • identify the disputes and related filings (e.g., the plan and objection documents);
  • identify the precise duty specified in § 1183(b)(3) under which the Report and Recommendation is being provided (e.g., to “appear and be heard [on] . . . confirmation of a plan”);
  • provide a report on the disputes at issue; and
  • recommend how the disputes might be resolved, along with the legal and factual rationale.

The role and effect of the Report and Recommendation is merely persuasion: it’s an argument to the Court entitled to the weight of a statutory duty. The Report and Recommendation is:

  • not expert testimony;
  • not evidence of any sort (although, a trustee might testify to what he/she has observed); and
  • not binding on the Court.

Two Hard-Knocks Examples

What follows are two hard-knocks examples in the plan confirmation context, on appearing and being heard by a Report and Recommendation filing.

–An Early Example

One of my earliest Subchapter V cases as trustee is a hotly-contested confirmation dispute heading to trial. 

In this case I’m trying to be diligent about facilitation efforts and trying to remain neutral for as long as possible—fact is, back then, I’m uneasy about taking sides, based on mediation training and experience. 

But in a pre-trial context, the Bankruptcy Judge asks, “When will the Trustee be taking a position on this plan dispute?”

I’m startled by that question (obviously, shouldn’t have been), saying in response, “Soon.”

That question results in a quick review of statutory duties for a Subchapter V trustee that finds this: a duty to “appear and be heard at . . . any hearing that concerns— . . . confirmation of a plan filed under this subchapter” (§ 1183(b)(3)(B)).

So, I promptly prepare and file a document stating my view on the merits of the dispute. [Note: I didn’t think to title it “Report and Recommendation” back then, but that’s what it would be titled now.]

To that point in the case, I’d been focused exclusively on facilitating a consensual plan — which meant the avoidance of taking sides. So, in doing the preparation and filing (i.e., taking sides), every mediation training and experience I’ve had reacts negatively.  Taking a substantive position, formally and in writing, favoring one side over the other seems so . . . wrong . . . and a violation of neutrality.

But the hard-knocks rule, in retrospect, is this: the filing of that document, which states a view on the merits of the dispute, helps nudge the parties toward a resolution of their plan-related dispute.  In other words, that filing helps satisfy another trustee duty: to “facilitate the development of a consensual plan of reorganization” (§ 1183(b)(7)).

Despite the discomfort, that’s how the Subchapter V trustee system is designed—how it’s supposed to work.  Filing the Report and Recommendation is the right and proper and correct thing to do, according to Congress’s statutory directive.  

–A Second Example

In a subsequent Subchapter V case, a real estate valuation dispute is the core issue, with widely divergent appraisals.  The appraisal differences are huge!  And I’m thinking, as Subchapter V Trustee:  “Something is wrong here . . . the differences cannot be this great.”   

So, as confirmation trial approaches, with all facilitation efforts exhausted (and recalling the Judge’s question in the prior case), a paralegal and I pursue the following steps:

  • I get into my car and drive by debtor’s property and all comparables identified in the appraisals;
  • The paralegal compiles information from the public record on each of the properties; and
  • We prepare and file a “Report and Recommendation” in favor of one appraisal and against the other appraisals, with details explaining the rationale.

Here’s what happens next: (i) the disappointed party files an objection to admission of my Report and Recommendation into evidence, (ii) then, we have a final Zoom facilitation meeting, and (iii) then, the parties settle the confirmation dispute on the eve of trial.

In that process, I’m uneasy about taking sides.  But, again, it appears that the Report and Recommendation helps the parties achieve an uncontested confirmation—i.e., it helps facilitate a consensual resolution.

The case resolves with an uncontested plan confirmation—just as Congress intended and provided.     

Conclusion

Every Subchapter V trustee has a statutory duty, under § 1183(b)(3), to “appear and be heard” on specified issues.

A Report and Recommendation filing is one way to satisfy this “appear and be heard” duty.

Above are two examples of hard-knocks efforts at struggling and stumbling to do just that in early cases.

** 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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