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DIP. Or they have allowed creditor professionals to serve the DIP as a matter of discretion based on the needs of the case, but those cases did not withstand appellate security.
10. Prepetition receipt of fees subject to avoidance as a preference creates a disqualifying conflict of interest. A firm may be held not disinterested if fees paid to an individual member as a receiver or trustee in fact belong to the firm.
1. A professional is not disqualified as DIP counsel solely because of employment by a creditor under the Bankruptcy Code, absent objection by another creditor or the U. S. Trustee, whereupon the court is to disapprove the employment if an actual conflict of interest exists. That section of the Bankruptcy Code was amended in 1984. Prior to the amendment, it stated that the professional could not, while representing the trustee [or DIP] represent a creditor in connection with the case. The option to represent both now appears open in the absence of an actual conflict, e.g. in the case of an anticipated plan paying creditors in full, a fully secured creditor with collateral the debtor plans to give up, or an insider creditor willing to accept subordinated treatment. Representation of a debtor while or even after representing the creditors committee in a predecessor case has been held to present a more than remote likelihood of an actual conflict, warranting disqualification; however, on appeal the district court allowed limited representation under § 327(e). If a former client creditor objects and the matters are substantially related, the bankruptcy court may enforce ethical code prohibitions on representation. Creditors'
This outline is adapted from Chapter 27, Ethical Responsibilities, Norton Bankruptcy Law & Practice 2d (Thomson-West 2005)
