  |
  |
  |
    
  
   |
 | |||
|
|
|
|
| |||
responsibilities must include exercising reasonable care and diligence to restructure the company in a way that is feasible and enhances the estate's overall value. The DIP must try to balance the interests of different parties fairly, but within the structure of the Bankruptcy Code. The Code's absolute priority rule restricts distributions to equity only in the event of cramdown with equity retaining an interest, however. The DIP is not precluded from bargaining for a reorganization share for equity, as long as the equity is not attempting to torpedo the reorganization or benefit itself alone at the expense of creditors. In fact, the Code provides for the debtor, not the DIP, to propose a plan, and allows the debtor to confirm it over creditor objections as long as creditors receive as much as they would in chapter 7.
2. A plan will not be deemed in good faith if the court cannot determine that management conflicts of interest did not affect treatment of creditors. The disclosure statement accompanying the plan should reflect the DIP's fiduciary duty to actively investigate and disclose all estate assets. It should be based on credible projections to rehabilitate the existing business, not "incubate" an entirely new business.
1. Counsel's role with respect to the DIP's fiduciary duties, and DIP management agendas, is limited but critical. Counsel may exert some or even considerable influence on bankruptcy strategy, but management still makes the final decisions. Ethically and legally, DIP counsel can only advise the DIP's designated representative, who makes
This outline is adapted from Chapter 27, Ethical Responsibilities, Norton Bankruptcy Law & Practice 2d (Thomson-West 2005)
