CONTENTS |
I. | Introduction | 552 |
II. | Facts and Procedural History | 553 |
III. | How Does Hartford Underwriters Affect this Case? | 555 |
A. | What happened in Hartford Underwriters? | 556 | |
B. | Did Hartford Underwriters take place in an analogous context? | 557 |
IV. | Do Derivative Suits under § 544(b) Survive Hartford Underwriters? | 559 |
A. | The Code Itself | 559 |
1. | The Need to Interpret Chapter 11 as a Whole | 559 | ||
2. | Section 1109(b) | 560 | ||
3. | Section 1103(c)(5) | 562 | ||
4. | Section 503(b)(3)(B) | 563 | ||
5. | A Textual Conclusion | 566 |
B. | Bankruptcy Courts as Courts of Equity | 567 |
V. | Pre–Code Practice | 569 |
VI. | Does Derivative Standing for Creditors' Committees Advance Congress's Goals? | 572 |
A. | The Salutary Effects of Derivative Standing for Creditors' Committees | 572 | |
B. | Potential Drawbacks of Derivative Standing for Creditors' Committees | 574 |
1. | Might derivative suits dissipate the value of the estate | 574 | ||
2. | Might bankruptcy courts be unable to identify meritorious claims | 575 | ||
3. | Might derivative suits consume judicial resources | 576 |
C. | Possible Substitutes for Derivative Standing for Creditors' Committees | 576 |
1. | Appointment of a bankruptcy trustee | 576 | ||
2. | Appointment of an examiner with authority to sue | 577 | ||
3. | Moving the court to order the debtor-in-possession to sue | 578 | ||
4. | Converting the bankruptcy case to Chapter 7 | 578 | ||
5. | Moving the bankruptcy court to authorize a committee to bring a post-confirmation avoidance action | 579 | ||
6. | Summary | 579 |
VII. | Conclusion | 580 |
Except as provided in paragraph (2), the trustee may avoid any transfer of an interest of the debtor in property or any obligation incurred by the debtor that is voidable under applicable law by a creditor holding an unsecured claim that is allowable under section 502 of this title or that is not allowable only under section 502(e) of this title.
We do not address whether a bankruptcy court can allow other interested parties to act in the trustee's stead in pursuing recovery under § 506(c). Amici American Insurance Association and National Union Fire Insurance Co. draw our attention to the practice of some courts of allowing creditors or creditors' committees a derivative right to bring avoidance actions when the trustee refuses to do so, even though the applicable Code provisions, see 11 U.S.C. §§ 544, 545, 547(b), 548(a), 549(a), mention only the trustee. See, e.g., In re Gibson Group, Inc., 66 F.3d 1436, 1438 (6th Cir.1995). Whatever the validity of that practice, it has no analogous application here, since petitioner did not ask the trustee to pursue payment under § 506(c) and did not seek permission from the Bankruptcy Court to take such action in the trustee's stead. Petitioner asserted an independent right to use § 506(c), which is what we reject today.
A party in interest, including the debtor, the trustee, a creditor's committee, an equity security holder's committee, a creditor, an equity security holder, or any indenture trustee, may raise and may appear and be heard on any issue in a case under [Chapter 11].
The debts to have priority, in advance of the payment of dividends to creditors, and to be paid in full out of bankruptcy estates, and the order of payments shall be: (1) ... where the property of the bankrupt, transferred or concealed by him either before or after the filing of the petition, is recovered for the benefit of the estate of the bankrupt by the efforts and at the cost and expense of one or more creditors, the reasonable costs and expenses of such recovery ...
[W]e hold that a creditors' committee may sue on behalf of the debtors, with the approval and supervision of a bankruptcy court, not only where the debtor in possession unreasonably fails to bring suit on its claims, but also where the trustee or the debtor in possession consents.
If a trustee unjustifiably refuses a demand to bring an action to enforce a colorable claim of a creditor, the creditor may obtain the permission of the bankruptcy *567 court to bring the action in place of, and in the name of, the trustee.... In such a suit, the creditor corresponds to the shareholder, and the trustee to management, in a shareholder derivative action.
It is questionable whether these precedents establish a bankruptcy practice sufficiently widespread and well recognized to justify the conclusion of implicit adoption by the Code. We have no confidence that the allowance of recovery from collateral by nontrustees is the type of rule that ... Congress was aware of when enacting the Code.
[W]e recognize the right of a creditor to apply to the bankrupt[cy] court for an order permitting him to prosecute an appeal in the name of the trustee, when he has called upon the trustee to take an appeal from the allowance of a claim against the bankrupt's estate, and the latter has declined to appeal. As the trustee is an officer of the bankrupt[cy] court, and subject to its orders, that *570 court has an undoubted power either to direct the trustee to appeal when it entertains doubts of the verity of its judgment, or to make an order permitting a creditor who so desires to appeal from the allowance in the name of the trustee when the latter declines to appeal.
The receiver is responsible for the collection of the assets ... and he alone can authorize any charges against them. If any creditor, petitioning or other, learns facts which lead him to suppose that property has been concealed, he may, and indeed he should, advise the receiver, and if the receiver prove slack, he may apply to the referee [the bankruptcy judge] to stir him to action. The referee or the [district] judge may then authorize the creditor to proceed, and he will be entitled to his reward under [§ 64], but not otherwise.
An examiner appointed under section 1104(d) of this title shall perform the duties specified in paragraphs (3) and (4) of subsection (a) of this section, and, except to the extent that the court orders otherwise, any other duties of the trustee that the court orders the debtor in possession not to perform.
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