Delaware Bankruptcy Court Issues Important Guidelines Concerning Payment of Indenture Trustee's Professional Fees

by Mintz Levin - Distressing Matters
Contact

Mintz Levin - Distressing Matters

In Nortel Networks, Inc., Case No. 09-0138(KG), Doc. No. 18001 (March 8, 2017), the Delaware Bankruptcy Court ruled on the objections of two noteholders who asked the Court to disallow more than $4.4 million of the $8.1 million of the fees sought by counsel to their indenture trustee.  Given the detailed rulings announced by the Court, the decision may establish a number of guidelines by which future fee requests made by an indenture trustee’s professionals will be measured.

Matters Handled by the UCC

The noteholders’ objection asserted that the trustee had breached its fiduciary duties because it had permitted its counsel to rack up millions of dollars of unnecessary fees during litigation that was being adequately handled by the Unsecured Creditors Committee (UCC). As proof, the noteholders pointed to the fact that the litigation was ultimately settled by counsel to the UCC pursuant to a global settlement which resulted in a resolution of the entire bankruptcy case.  In response, the Court noted that the trustee’s fiduciary duties with respect to the direction of counsel are governed by the “prudent person” standard, but that that standard cannot be applied through the 20/20 lens of hindsight.  Instead, the trustee’s actions must be analyzed in the context of the facts known at the time of the direction.

The Court observed that Nortel was an unusually long, complex and contentious proceeding in which the trustee and its counsel were required to protect the noteholders’ rights during a number of hotly contested proceedings, any one of which might have significantly and adversely affected the noteholders’ recoveries. Thus, during the case, it would not have been prudent for the trustee to rely solely upon counsel to the UCC to protect the interests of the noteholders.  The fact that the case was ultimately resolved by the efforts of the UCC was not dispositive since, at the time, the trustee could not have prudently assumed that result.  The Court did, however, contrast the litigation issues which might have directly affected noteholders with matters, e.g., attendance at regular meetings of the UCC, which only affected general unsecured creditors as a whole.  Those latter issues were in fact being adequately handled by counsel to the UCC, and fees for more than one counsel representing the trustee at regular meetings of the UCC would be disallowed.

Transition Fees

The noteholders objected to fees charged by the trustee’s predecessor counsel for time spent transitioning the representation to the trustee’s current counsel. The Court found, as an evidentiary matter, that predecessor counsel had been uncooperative during the transition process, thereby necessitating more work by successor trustee counsel.  Accordingly, it sustained the noteholders’ objection based upon predecessor counsel’s “nonfeasance.”

Fees for Defending Fees

The noteholders objected to fees incurred by the trustee in defending the fee objection, citing the U.S. Supreme Court’s recent ASARCO case which stands for the proposition that lawyers cannot recover fees for defending their own fees in a bankruptcy proceeding.  The Bankruptcy Court noted, however, that ASARCO allowed an exception where one party had contractually agreed to pay the fees of the other party.  The Bankruptcy Court ruled that the indenture was such a contract because it required the debtor to pay the fees of trustee’s counsel and, in any event, granted the trustee a charging lien on any recovery owed to the noteholders.

All told, of the $8.1 million in asserted fees, the Bankruptcy Court sustained the noteholder’s objections to the extent of $913,936.70. The Court specifically remarked that it was generally unsympathetic to the noteholders’ complaints in light of the fact that the noteholders had never objected to counsels’ fees until near the end of the case.

In general, Nortel is a favorable decision for indenture trustees and their counsel, which stands for the proposition that fees should not be second-guessed with hindsight so long as there is a reasonable need to protect the specific interests of the noteholders.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Mintz Levin - Distressing Matters | Attorney Advertising

Written by:

Mintz Levin - Distressing Matters
Contact
more
less

Mintz Levin - Distressing Matters on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.