Third Circuit: Bankruptcy Code Mandates Appointment of Examiner In Chapter 11 Cases

Although Chapter 11 of the Bankruptcy Code allows existing management of a debtor to remain in control of its business, it imposes several oversight mechanisms to help ensure the integrity of the process. Two of the most common include the Office of the U.S. Trustee and an Official Committee of Unsecured Creditors. In addition, the code calls, under certain conditions, for the appointment of an independent examiner whose role can run from the very broad to extremely limited. Some courts interpret the code's examiner appointment provisions to be mandatory if the statutory requirements are met, while many others do not. The now infamous Chapter 11 bankruptcy case of FTX Trading Ltd. (FTX), once a multibillion-dollar cryptocurrency company, has reemerged in a dispute over this very important issue. On appeal, the U.S. Court of Appeals for the Third Circuit recently held that the plain text of Section 1104(c)(2) mandates the appointment of an examiner under the specified conditions set forth. See, In re FTX Trading, No. 23-2297, 2024 U.S. App. LEXIS 1279 (3d Cir. Jan. 19, 2024). As a result, in the Third Circuit, and likely other jurisdictions, the FTX decision will carry significant implications for large and medium-sized bankruptcy cases.