Business Bankruptcy–Appointment of a Trustee in Bankruptcy

Business Bankruptcy – Simplified Operating Guidelines

A "How-To" Manual

For Non-Bankruptcy Professionals
Page 10
Robert S. Apfelberg, Karrie L. Bercik, Esq.

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Chapter 8. Appointment of a Trustee in Bankruptcy

The administrative period management and board of directors of the debtor will be replaced by a chapter 11 (or 7) trustee for: (i) lying, (ii) stealing, (iii) favoring certain creditors or insiders, (iv) failing to actually reorganize operations and personnel, (v) failing to file timely interim statements or other reports, (vi) increasing debt or bouncing checks, or (vii) violating bankruptcy code rules or committing bankruptcy crimes.

Any interested party may request appointment of a chapter 11 (or 7) trustee. The OUST selects the trustee subject to the approval of the court. Although interested parties have the right to vote to select a particular trustee, OUST generally selects an individual who is serving in this capacity on a continuing basis and has been pre-approved ("panel trustee").

Once a trustee has been appointed, the debtor’s management and director’s role is limited to turning over company property and providing full information. The trustee has all powers to: (i) operate the business, (ii) employ personnel, (iii) represent the debtor, and (iv) sell the business. The trustee often employs its own personnel to supervise the debtor’s operations, prepare financial statements, and secure all of the debtor’s assets. The trustee assumes the obligation of filing all necessary interim statements and reports, tax returns and certificates. However, the trustee has unusual immunity from employee and municipal "police power" claims that arise from its operational activities (similar to many state court appointed "receivers").

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