2009 Chapter 11 Recent Developments (Part I)

Rules:

(1)

"The Third Circuit held that a Bankruptcy Court's interpretation of its own order is subject to review for an abuse of discretion, unless the issue being reviewed presents only a question of law, in which case it is subject to de novo review... the determination of whether relevant documents are ambiguous in the first instance is subject to de novo review... if 'the Plan is ambiguous, we will defer to the Bankruptcy Court's interpretation unless it is unreasonable under the circumstances.'"

(2)

The decision to appoint an equity committee is in the sound discretion of the bankruptcy court and the bankruptcy court's reconstitution of the committee is reviewed only for an abuse of discretion. Likewise, the bankruptcy court's decision to award fees is reviewed for an abuse of discretion.

Holding: Affirmed.

Reasoning: The bankruptcy court correctly held that the terms of the plan and the supporting documents were unambiguous and that the equity holders are able to receive a distribution only if the debtors were not insolvent as a result of the distribution and the distribution would not be a fraudulent conveyance. The bankruptcy court's fee awards are warranted - the bankruptcy court did not allow blanket increases without consideration of the parties' positions. Instead, the court carefully considered the parties' requests and arguments in allowing fees for certain experts and disallowing other fees for work the court did not think was well advised.

Street v. The End Of The Road Trust, et. al., 394 B.R. 19 (Bankr. D. Del. 2008)

Facts: Former trustee of the debtors' liquidating trust (the "Trust") sued the Trust for the advancement of certain fees and expenses. The former trustee was CEO of the debtors and, when the debtors exited bankruptcy, became the trustee of the Trust pursuant to the terms of the Plan, the Disclosure Statement, a Trust Agreement, a Trust Employment Agreement (the "TEA"), and an employment agreement (the "FEA"). Neither the FEA nor the TEA were finalized on time; also both the FEA and the TEA provided that the trustee was to be indemnified by the Trust in defending any criminal or civil action. The Plan, Disclosure Statement and TA, though, provided that the trustee could be indemnified by the Trust at the Trust's discretion. In 2005, the former trustee resigned and a new trustee was appointed, who has repeatedly denied the former trustee's requests for indemnification. The former trustee moved (and the defendants cross-moved) for summary judgment in his favor.

Issues: Whether the Trust is required to indemnify the former trustee's costs and expenses in defending himself in this adversary proceeding.

Rules:

(1)

Under Delaware law, absent a specifically worded mandatory advancement, it is up to either the trustee or the Trust committee to exercise their judgment as to whether the former trustee should be indemnified.

(2)

In exercising discretion in deciding whether to indemnify the former trustees, the general law allows reimbursement in two situations: when attorneys' fees are necessary for the proper administration of the trust, or where the services otherwise benefitted the trust.

Holding: The former trustee's motion is denied. The respondent's motion was denied as moot.

Reasoning: It is only the TEA and the FEA, both entered into sometime after the Plan effective date

(i.e. untimely), that contain mandatory advancement provisions, which are neither found nor discussed in the Plan, Disclosure Statement nor TA. The mandatory provisions materially modify the