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 sixth-and-last article in the series focuses on a Subchapter V trustee’s facilitation duty and inherent powers.
Duties & Powers
A duty is something that must be done.
A power is something that may be done.
Here’s a two-part illustration of the distinction:
- a Subchapter V trustee “may raise and may appear and be heard on any issue in a case under this chapter” (§ 1109(b)); but
- a Subchapter V trustee “shall . . . appear and be heard at the status conference . . . and any hearing that concerns— . . . value . . . confirmation . . modification . . . or . . sale” (§ 1183(b)(3)).
One part is a power (“may appear and be heard”); the part other is a duty (“shall . . . appear and be heard).
One is a choice for the trustee to make; the other must be done—the trustee has no choice.
Facilitate Duty & Inherent Powers
A primary duty of a Subchapter V trustee is to “facilitate the development of a consensual plan of reorganization” (§ 1183(b)(7)).
Question:
- Is there any limit on the powers a Subchapter V trustee might use to fulfill the facilitate duty?
Answer:
- There is no express limit in the Bankruptcy Code; and
- so, a Subchapter V trustee has the inherent power to do everything the trustee reasonably believes is needed or might be helpful in fulfilling the facilitate duty.
That means, a Subchapter V trustee has the inherent facilitation power to do such things as:
- communicate directly with debtor’s counsel on what might be needed to achieve a consensual plan;
- communicate directly with counsel for various creditors, separately or collectively, toward the same end;
- bring disputing parties together for a mediation-like facilitation to discuss pending issues and how a consensual plan might be achieved—such mediation-like facilitation might be:
- in a joint-session, in which the disputing parties meet together with the trustee as facilitator; or
- in a caucus format, in which the facilitating trustee carries offers and rationale back and forth between separately-ensconced parties;
- evaluate and take substantive positions before the court, in writing or orally, on the merits of issues identified in § 1183(b)(3);
- decide whether and how to take a substantive position on the merits of other issues under § 1109(b), based on whether such action (or inaction) might help facilitate a consensual plan; and
- ask the court for authority under § 1183(b)(2) to conduct an investigation into “the acts, conduct, assets, liabilities, and financial condition of the debtor”—if such an investigation might help facilitate a consensual plan;
Other Duties With Inherent Powers
Facilitation is not the only Subchapter V trustee duty in which the trustee has inherent powers to fulfill the duty. Two examples of other such duties are:
- a trustee has the duty to object to claims, if in the trustee’s discretion “a purpose would be served” (§ 704(a)(5) & § 1183(b)(1)); and
- a trustee has the duty to oppose debtor’s discharge—if, in the trustee’s discretion, doing so is “advisable” (§ 704(a)(6) & § 1183(b)(1).
Moreover, a Subchapter V trustee has automatically-expanded powers under § 1183(b)(5), when the court orders removal of debtor from possession. With such automatically-expanded powers, the trustee has other powers, by authority of statutes, to do (or not do) such things as:
- operate debtor’s business (§ 1183(b)(5)(B));
- sell estate assets under § 363;
- obtain credit for the estate under § 364, if the trustee decides to operate debtor’s business;
- recover possession of estate assets under §§ 542 and 543;
- avoid transfers under §§ 544, 545, 547, 548 & 549; and
- abandon property of the estate under § 554.
A Subchapter V trustee has inherent power to make reasonable decisions on whether and how to exercise any or all of these automatically-expanded powers.
Motions for “Expanded Powers”
There’s talk these days about applications to the bankruptcy courts for granting “expanded powers” to the Subchapter V trustee on a case-by-case basis.
In one sense, that’s an accurate description in certain circumstances. Baked into the Bankruptcy Code is the possibility for expanding a Subchapter V trustee’s powers by court order, such as:
- an order authorizing the Subchapter V trustee investigate (under § 1183(b)(2) & § 1106(a)(3)); and
- creating automatically-expanded powers by an order removing debtor from possession (under § 1183(b)(5)).
A court grants such expanded powers by (i) an order for investigation, or (ii) an order removing debtor from possession.
But why is an order needed to expand powers, when such powers already exist — either by direct grant in the Bankruptcy Code or as inherent powers?
- A Subchapter V trustee already has express and inherent powers needed to fulfill the facilitate duty and other duties as well.
Conclusion
The distinction between duties and powers is important for understanding the role, including the facilitate duty, created by the Bankruptcy Code for Subchapter V trustees.
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