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Sept. 23 — Bankruptcy professionals have “mixed perspectives” on the value of attorneys' fee guidelines for large (assets and liabilities of over $50 million) Chapter 11 cases, according to a Government Accountability Office report released Sept. 23.
The U.S. Trustee Program (USTP), which created the guidelines in 2013 to address concerns of excessively high attorneys' fees in big cases, issued a response to the report in which it addressed some criticisms of the guidelines.
Director of the USTP Clifford J. White said in his Sept. 3 statement that some bankruptcy professionals “continue to misunderstand certain aspects of the [guidelines]” and that some of the criticisms “go beyond the purpose of the [g]uidelines and reflect general frustration about the nature of the bankruptcy process and the high cost of [C]hapter 11 case administration.”
The GAO report said there were generally few problems complying with the guidelines in the 94 large cases filed since the guidelines went into effect. But the GAO found that “[b]ankruptcy stakeholders had mixed perspectives of the overall value of the guidelines and of their potential effect on the efficiency and transparency of the Chapter 11 bankruptcy process, or the fees awarded.”
“For example,” the GAO said, “stakeholders with a positive view said the budgeting provision encourages early communication in a case, while those with a negative view said that the unpredictability of bankruptcy cases limit the value of a budget.”
White noted in his statement that the “GAO also correctly acknowledge[d] that the recency of the promulgation of the [guidelines] and their application to fewer than 100 cases reviewed in the report makes definitive conclusions both difficult and premature.
White also made three general observations about the report: 1) “[i]nitial opposition to the guidelines by bankruptcy attorneys appears to be yielding to compliance and improved billing practices[;]” 2) “[t]he USTP should continue its outreach to explain the guidelines to the bankruptcy community[;]” and 3) “[t]he guidelines address matters relating to professional compensation and cannot be expanded to address other legitimate concerns parties may have with the [C]hapter 11 process.”
The report also addressed venue selection and noted that “[a]pproximately 61 percent of large Chapter 11 bankruptcy cases filed since October 2009 were filed in two jurisdictions–the Southern District of New York (SDNY) and the District of Delaware (Delaware).” The GAO said this concentration of cases has had both positive and negative effects for bankruptcy professionals.
“The positive effect most commonly cited by attorneys and judges was the significant large case experience developed by judges in the SDNY and Delaware,” the GAO said. “In contrast, the negative effects most commonly cited by attorneys were the difficulty local bankruptcy firms face in maintaining a bankruptcy practice outside of the SDNY and Delaware and the lack of opportunity for courts outside of these jurisdictions to develop precedent and expertise.”
White responded that although attorneys' fees may be a factor in venue selections, “the USTP's role in policing venue selection is generally more limited to addressing violation of the venue statute and abuse of the process.”
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The GAO report is available at: http://www.gao.gov/products/GAO-15-839
The USTP's response is at: http://src.bna.com/mi
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