Subchapter V Trustee’s Facilitation Role (Part 3)—A BANKRUPTCY MODEL

By: Donald L Swanson

“(b) Duties.—The [Subchapter V] trustee shall— . . . (7)facilitate the development of a consensual plan of reorganization.”

• From 11 U.S.C § 1183(b)(7)(emphasis added).

Facilitation is, by statute, a duty of every Subchapter V trustee—something a Subchapter V trustee must do.  But the nature and boundaries of the facilitation role have always been fuzzy and, therefore, misunderstood. 

My purpose in this multi-part series is to provide observations on the facilitation role.

This article is about using historical bankruptcy practice as a model for the facilitation duty.

Bankruptcy Context for Facilitation Duty

The Subchapter V trustee’s statutory duty to facilitate arises out of business bankruptcy’s historical context: it comes out of what has actually happened in business bankruptcy cases.  

So, this historical context provides a model for the Subchapter V trustee’s facilitate duty.

Here’s how.

–Maximizing Value

In a business bankruptcy with substantial assets, having many issues and many disputing parties, the parties must do two things to make the bankruptcy work:

1. cooperate to maximize value of debtors assets and operations; and
2. fight over who gets the money.

Unless the parties are effective in maximizing value, there is no money left to fight over.

–Informal Facilitation

Here’s what I’ve observed over decades of bankruptcy practice.

To maximize value, in many cases, one or more professionals takes an informal-but-leading role in:

• developing a value-maximizing strategy; and
• getting buy-in for that strategy from competing parties.

Buy-in happens when the strategy makes sense for everyone.  Getting buy-in is not a matter of twisting arms or a charismatic personality. It’s a matter of having a strategy that makes sense.  

This informal role might be filled by any of a number of professionals, including:

• debtor’s counsel;
• creditor committee’s counsel;
• counsel for a major creditor;
• trustee; or
• someone else. 

I’ve seen many bankruptcy professionals work effectively in this informal role.  Each of them has an ability to deal effectively in cases where the business is described as “a mess.” 

They each have instincts, based on years of experience, to:

• see a path through the mess;
• know what first steps to take;
• know which issues are most urgent;
• bring order out of chaos;
• develop a strategy that makes sense to everyone; and
• get everyone on board.

Truly effective practitioners see dealing with “a mess” and facilitating its resolution as an adventure.

Bankruptcy Model

This informal role and how it works is important to an understanding of the Subchapter V trustee’s facilitate duty.  It informs our understanding of:

• what the “facilitate” duty of the Subchapter V trustee might mean; and
• what a Subchapter V trustee might to do to fulfill the “facilitate” duty.

It is a model for the Subchapter V trustee’s “facilitate” duty.

To be sure, the Subchapter V trustee:

• is not debtor’s counsel—and cannot fill that role;
• is not creditor’s counsel—and cannot fill that role either.

But, the Subchapter V trustee can, within the confines of applicable duties and powers, do exactly what those informal bankruptcy leaders have always done—i.e., facilitate a consensual reorganization.

Conclusion

For anyone wanting to fulfill the Subchapter V trustee’s “facilitate” duty, here’s a suggestion:

• find out what effective bankruptcy practitioners do, and have always done, to make regular Chapter 11 cases work; and
• emulate what they do.

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