Bankruptcy

ND Ga - Compensation For Chapter 11 Counsel After Appointment of Chapter 11 Trustee And Then Conversion Of Case To Chapter 7

By Scott Riddle

Two recent opinions from the Northern District  (in the same Bankruptcy case) concern debtor's counsel's right to attorneys fees where, first, a Chapter 11 Trustee is appointed and then the case is converted from a Chapter 11 to a Chapter 7:

In re Patterson,  Case No. 07-61961-MHM, 2008 Bankr. LEXIS 704 (Bankr. N.D. Ga. January 15, 2008).  After conversion of case from Chapter 11 to Chapter 7, debtor's counsel filed an application for compensation and sought to apply pre-petition retainer to fees and expenses.  However, the Chapter 7 Trustee and United States Trustee objected because the case might be administratively insolvent.  Counsel argued that the retainer was a security retainer, not subject to disgorgement pursuant to 11 U.S.C. §726(b).

The Court disagreed, and ordered counsel to turn over the retainer to the Chapter 7 Trustee. Counsel  would have an administrative claims for fees in the Chapter 7 case, according to the priorities in the Code.

In re Patterson,  Case No. 07-61961-MHM, 2007 Bankr. LEXIS 4513 (Bankr. N.D. Ga. December 11, 2007).  After the withdrawal of Chapter 11 debtor's first counsel, and the appointment of a Chapter 11 Trustee, a second attorney appeared on behalf of the debtor

On July 29, 2007, Debtor filed an application (the "Application") to employ K. A. Foreman as attorney for debtor. By order entered August 8, 2007, that Application  was denied as unnecessary because, upon conversion, the Trustee's attorney displaced the debtor's attorney. In re NRG Resources, Inc., 64 B.R. 643 (W.D.La. 1986). An attorney employed by a Chapter 11 debtor who continues to perform services after conversion and appointment of a Chapter 7 Trustee may be compensated from property of the estate only if the attorney is either retained by Trustee for a specific and limited special purpose with prior court approval or performs services that are beneficial to the administration of the estate. ...

....As set forth above, however, a debtor's attorney is entitled to compensation from the estate following conversion only under extremely limited circumstances, which are not present here. All the services  by Mr. Foreman were rendered after the Chapter 11 Trustee was appointed, and most of the services were rendered after the case was converted. Mr... Accordingly, it is hereby ORDERED that the application ... for compensation is denied.

Full post as published by Georgia Bankruptcy Blog on May 03, 2008 (boomark / email).