Pillsbury Winthrop Shaw Pittman

Lehman: new limitations on plan payment of individual creditors’ committee members’ professional fees

By Richard L Epling, Peter A Baumgaertner, Leo T Crowley and Dina E Yavich

In the recent case of Davis v Elliot Mgmt Corp (In re Lehman Bros Holdings Inc), 2014 US Dist. LEXIS 48102 (SDNY 31 March 2014), the District Court for the Southern District of New York issued a decision barring reorganisation plans from paying the legal fees of individual members of official creditors’ committees absent a showing of substantial contribution to the estate. In so holding, the District Court disapproved a trend among New York bankruptcy courts to permit such payments if they are expressly included in the reorganisation plan, notwithstanding a lack of specific authorisation in the Bankruptcy Code. As a result of this ruling, indenture trustees that serve on official creditors’ committees as part of their role in reorganisation cases may find it increasingly difficult to recover their professional fees and expenses pursuant to plan payment provisions.

From 1994 to 2005, the Bankruptcy Code permitted legal fees incurred by ad hoc committees and individual committee members to be paid as expenses of a chapter 11 case. The enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) (Pub. L. 109–8, 119 Stat. 23, enacted 20 April 2005), however, imposed a limitation on professional fees that could be recovered as administrative expenses.

Section 503(b)(4) of the Bankruptcy Code provides for the reimbursement of certain professional fees ‘rendered by an attorney or an accountant of an entity whose expense is allowable under’ section 503(b)(3)(A)-(E). While expenses incurred by an official committee qualify for reimbursement under this provision, compensation for professional fees of unofficial committees or individual official committee members — including indenture trustees — are not similarly authorised…

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