The Examiners: ABI Commission Recommendations Deserve Consideration

Summary of the Article

The myriad issues addressed in a Chapter 11 bankruptcy—asset sales, operational restructuring, litigation claims and capital structure, to name a …


Have Chapter 11 restructurings become so expensive that professionals are essentially pricing themselves out of business? 

In addressing the Office of the U.S. Trustee’s new attorney fee guidelines, the American Bankruptcy Institute (ABI) Commission’s report recently proposed constructive changes regarding the retention and compensation of professionals. These recommendations are, in part, designed to incentivize professionals to provide services in a cost-effective manner. Additionally, the commission suggested the consideration of the value, relevance and viability of alternative fee arrangements, fixed fee arrangements and task-based fees in the compensation of professionals.

It is important to understand that leading a company and its associated stakeholders through the Chapter 11 process is a highly complex endeavor that requires dealing with multiple parties over an extended period of time, most of whom hold varying and often widely divergent interests. The amounts and nature of the claims at issue in the largest Chapter 11 filings are not only material but also controversial between and among the different constituencies throughout the capital structure. The myriad issues addressed in a Chapter 11 bankruptcy—asset sales, operational restructuring, litigation claims and capital structure, to name a few—require specialized expertise in a number of areas. The knowledge, experience and value that experienced bankruptcy professionals bring to a case should not be underestimated because the recovery of stakeholder value is directly linked to the strategies developed, negotiated and implemented by highly skilled restructuring professionals.

The commission’s recommendations deserve thoughtful consideration because they provide valuable suggestions to drive additional efficiencies on multiple fronts of the Chapter 11 process. This is especially true for small- to middle-market cases, which often have complex issues on par with the larger Chapter 11 filings but lack the funds to support a similar level of effort by the case professionals.

Chapter 11 can be an expensive process, but not unjustifiably so. Ultimately, a holistic approach to maximizing value for a cross section of stakeholders in the Chapter 11 process, which includes market-based fee arrangements for professionals (including alternative fee structures), will have the best chance of aligning the interests of all involved in the value preservation and value creation effort that is the hallmark of a successful restructuring.

Ralph S. Tuliano is chief executive of financial advisory firm Mesirow Financial Consulting LLC and a member of the American Bankruptcy Institute’s board of directors.

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first published: 2015-02-03 17:48:45