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ABI Poll Finds Trustees Not Necessary in All Chapter 11 Cases

A poll conducted by the American Bankruptcy Institute (ABI) found that trustee participation isn't necessary in every Chapter 11 bankruptcy filing. A clear majority felt that a trustee doesn't need to be appointed to, at the very least, restrain a debtor in possession (DIP) from abusing its position.

A whopping 64%—47% "strongly" and 17% "somewhat"—disagreed that the DIP model has proven to be too susceptible to abuse and thereby warrants a trustee to be appointed in every Chapter 11 case.

Under U.S. bankruptcy law, the DIP model allows a person or corporation who has filed bankruptcy to remain in possession of property upon which a creditor has a lien or similar security interest. Critics of the DIP model have recommended that a trustee be appointed in every Chapter 11 case to at least provide oversight for a DIP with limited management authority.

Conversely, 32% of the respondents—19% "strongly" and 13% "somewhat"—believed that a trustee should be appointed in every case in order to prevent such abuses. Two percent did not know, or had no opinion on the matter.

DIP financing can often provide an ailing debtor with a second chance, but, as far as unsecured creditors are concerned, their participation can be a mixed blessing, as claims frequently fall by the wayside.

- Jacob Barron, CICP, NACM staff writer