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The Bankruptcy StrategistKickerFeaturesSectionsNewsLJN Newsletters

Retention of Restructuring Professionals

By Richard L. Wynne and Chad J. Husnick
June 27, 2005

Restructuring professionals must be acutely aware of potential conflicts of interest. Indeed, federal courts on occasion have disqualified a professional or ordered the disgorgement of the professional's fees in situations where that professional failed to properly disclose a conflict of interest. The importance of conflicts of interest is especially evident in today's global economy, in which restructuring matters routinely involve many of the same parties.

It is not always easy for professionals to determine whether they are disqualified from providing services to a debtor in bankruptcy. For example, it is well settled that disclosures are not limited to actual conflicts, but also include potential conflicts. See, e.g., Halbert v. Yousif and Tanners, Inc., 225 B.R. 336, 345-346 (Bankr. E.D. Mich. 1998) (“the concept of disinterestedness in ' 327(a) unquestionably covers not only actual, but also potential, conflicts of interest, and includes the avoidance of an appearance of a conflict of interest”) (citing Rome v. Braunstein, 19 F.3d 54, 57-58 (1st Cir. 1994)). However, are professionals really required to resort to speculation and conjecture in order to unearth every potential conflict of interest? Should professionals be concerned that parties will make strategic challenges to their employment in a particular proceeding? The bankruptcy court's decision in the WorldCom bankruptcy addressing a motion to disqualify WorldCom's accountant provides some important clarification regarding professional retention in bankruptcy. See In re WorldCom, Inc., 311 B.R. 151 (Bankr. S.D. 2004).

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