Considerations of Examiner Appointments in Bankruptcy Actions

Examiner appointments in Chapter 11 bankruptcy cases are uncommon, and despite Judge Peter J. Walsh's statement that he had appointed an examiner only two or three times during his career as a bankruptcy judge, he recently ordered the appointment of an examiner in the case of In re DBSI, Inc., Case No. 08-12687 (Bankr. D. Del. Mar. 25, 2009). In granting the Idaho Department of Finance's motion, Judge Walsh found that the allegations of fraud against DBSI and some of its current officers and directors were substantial enough to warrant the appointment of an examiner. Relying upon a review of recent examiner cases, the authors of this article conclude that a court is most likely to appoint an examiner when the movant: 1) alleges substantial acts of fraud, especially securities fraud, by the debtor and its management team; 2) establishes a complex interrelationship among the debtor, its management, and non-debtor entities; and 3) has the support of the United States trustee (“Trustee”) and any other significant creditor groups.