Friday, March 11, 2011

Employment of Professionals in Chapter 11 Bankruptcy


     Sometimes it seems that Chapter 11 bankruptcy has a rule for everything.  In this article I go through the hiring of any “professional” in a Chapter 11 case.  First off we have to define what a professional is per the Chapter 11 rules.
     A professional, or at least one that needs to get approved by the court, has to be licensed in their occupation.  So a licensed CPA is a professional that has to be appointed while a normal unlicensed accountant is not.  A licensed real estate agent is a professional and a unlicensed real estate agent is not.  Seems a little strange since the licensed and unlicensed person is doing the same exact job but those are the rules.
     If you want to use a licensed professional, such as a CPA, your attorney for the estate, that also has to be approved, has to file a Application to Employ that professional.  The biggest complaint of this is that the CPA, if approved, has to file a fee application with the court before the Debtor’s estate can pay them any money.  Sometimes licensed professionals do not want to add that to their list of things necessary to get paid.  I will break down the exact procedure required later.
     Another interesting aspect is that case law previously required professionals that want to be hired by the estate to waive any amount due to them for pre-filing work.  A recent decision, In re Talsma, 436 B.R. 908 (Bankr. N.D. Tex 2010), states that this may no longer be the case.
     Another topic that has been recently decided is whether or not a CPA has to be appointed to do the monthly operating reports for the estate.  One court at least has said no.  They stated that a professional only has to be appointed when they are using the expertise they are licensed for.  So the court would not require them to be appointed for operating reports but would if they are going to do tax returns.  Strange.
     Real World Examples:

CPA
A business files for Chapter 11 protection and needs an accountant to prepare and file their tax return.  They would like to use the same accountant they have used for years but owed him money on the date of filing for previous work he had completed.  In some courts they cannot use him unless he waives his pre-petition claim against the estate.  If he is willing to do that or if he was in fact not owed any money on the date of filing the estate attorney will need to send him an affidavit that states his hourly fee, experience and that he has no conflict.  After that is returned the estate attorney will need to file an application to employ the accountant and attend a hearing on the matter.  As long as they are reasonable and have no conflicts the accountant should be approved.  However this is not the end of it.  Every time he wants to get paid the estate attorney will have to get the accountant’s time records and file a fee application that will be set for hearing.  If the application is reasonable it should be approved by the court and the accountant can get paid.

Other Professionals That Routinely Come Up and Need to be Approved

Eviction Attorney
A real estate investor files for Chapter 11 protection and needs to use a state court eviction attorney to perform evictions from time to time.

Other State Court Attorney
Anytime an attorney needs to be used for any purpose at all they need to be approved.

Real Estate Professional (Licensed)

      I hope this article sheds some light on the seemingly difficult process of hiring a licensed professional in a Chapter 11 bankruptcy proceeding.  Should you need more information on this or anything else regarding Chapter 11 please go to http://chapter11jax.com, email me at jason@jasonaburgess.com, or call me at (904) 521-9868

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