THE ETHICS OF REPRESENTING DEBTORS &
CREDITORS IN BANKRUPTCY

and is a fiduciary to its creditors as well as its equity owners. It is difficult to determine, however, the precise scope of a DIP's fiduciary responsibilities, and how to avoid participating in or assisting a DIP in the breach of its fiduciary duties, and to counsel a DIP to meet its fiduciary obligations. The DIP's attorney must be pro-active and render unsolicited advice, as well as respond to client requests for advice, to inform the client of the need for preventative or corrective action in carrying out fiduciary duties.

1. Courts have sometimes described the DIP's fiduciary duties broadly but vaguely, as an obligation to act not in his or her own best interest, but rather in the best interest of the entire estate, including the creditors and owners of the estate. Yet Congress did not require the DIP or its constituents to be disinterested, and competing creditors' interests are generally protected by their own counsel, the creditors' committee and the U.S. Trustee. The interests of DIP management (especially when they are liable for some DIP debts as guarantors or general partners) may differ from the interests of the DIP entity or some or all of its creditors. The DIP is to forego from self-dealing at the expense of creditors, and obey Code restrictions and court orders. But beyond that proscription, how is the DIP to act in the best interests of all?
2. There are two oft-discussed prongs to fiduciary duties: a duty of care, and a duty of loyalty. A fiduciary must make informed decisions and exercise the judgment that a person of ordinary intelligence and prudence would exercise, in fulfilling those duties.

This outline is adapted from Chapter 27, Ethical Responsibilities, Norton Bankruptcy Law & Practice 2d (Thomson-West 2005)