Third Circuit: Bankruptcy Court Lacks Discretion to Deny Examiner Appointment Motion in Large Chapter 11 Cases

Summary

This article discusses a recent decision by the Third Circuit on whether a bankruptcy court can deny a motion to appoint an examiner where the debtor meets the statutory threshold. The Bankruptcy Code provides that, in Chapter 11 cases where the court does not find cause for the appointment of a trustee, the court shall appoint an examiner, upon a request from the Office of the U.S. Trustee (UST) or any party-in-interest prior to confirmation of a Chapter 11 plan. The examiner's role is to investigate the debtor's affairs or allegations of management misconduct, if either (1) the court determines that the appointment would be in the best interests of stakeholders and the estate or (2) the debtor has qualifying unsecured debt exceeding $5 million. It is well recognized that a bankruptcy court has the discretion to determine whether the appointment of an examiner is in the best interests of stakeholders and the estate. However, courts sometimes disagree over whether the appointment of an...