506 B.R. 757
Bankr. C.D. Ill.2014Background
- Debtor Copenhaver, Inc. (W.M. Putnam Co.) filed Chapter 11 after losing a major customer and promptly liquidated most assets, selling core assets to Martin Graphics.
- Debtor sought to hire former president and current director Dave Moravec — now employed by Martin and with ties to Martin (Martin holds a $32,000 unsecured claim) — as a part‑time consultant/Chief Restructuring Officer at $225/hour under 11 U.S.C. § 363(b).
- Moravec continued performing postpetition work in the ordinary course and is assertedly the only executive with the institutional knowledge to finish winding down the estate.
- Debtor proposed retention under § 363(b) (not § 327) and argued that fee‑application requirements (§ 330/§ 331) do not apply to § 363(b) retentions. Moravec volunteered to file periodic fee reports but asserted his compensation was not otherwise subject to court oversight.
- The U.S. Trustee/Assistant UST agreed with hiring in concept but objected to procedural aspects and expected § 327 procedures. The Court tentatively approved retention only if Moravec acknowledged Rule 2016 oversight and agreed to file a final fee application; Debtor refused and instead submitted a brief defending its position.
Issues
| Issue | Debtor's Argument | Opposing Argument | Held |
|---|---|---|---|
| Whether § 363(b) authorizes employment of a non‑disinterested former director (Moravec) as consultant/CRO | § 363(b) may be used to employ consultants/CROs when business justification exists; § 327 inapplicable because Moravec is not disinterested | § 327 normally governs professionals; non‑disinterested persons are ineligible under § 327 and that policy favors § 327 procedures | Court: § 363(b) can authorize such employment in unique, compelling circumstances here, but § 327 remains the default for professionals generally |
| Whether employment under § 363(b) exempts the appointee from fee‑application and oversight requirements (Rule 2016, § 503) | No fee application required; § 330/§ 331 do not apply to § 363(b) retentions, so Rule 2016/§ 503 inapplicable | Fees and administrative claims must be approved under § 503; Rule 2016 applies to anyone seeking compensation; § 330 is not exclusive | Court: § 330/§ 331 may not apply, but § 503 and Rule 2016 do; Moravec must submit time records, interim reports as ordered, and a final fee application for court review |
| Whether prior unpublished orders and trends excuse filing a formal acknowledgment or fee application | Cited unpublished orders and articles purportedly allowing administrative protocols without full fee applications | Those rulings do not stand for exemption from § 503/Rule 2016; many required reporting and review mechanisms | Court: cited unpublished orders do not establish a rule exempting oversight; voluntary promises insufficient; formal acknowledgment and procedures required |
| Remedy because Debtor declined Court's conditions | Debtor refused to file amended declaration or proposed order acknowledging oversight and final application requirement | Court insisted on formal acknowledgment to ensure reviewability and protection of estate/creditors | Court: Denied Employment Application without prejudice; Debtor may refile consistent with Opinion |
Key Cases Cited
- In re Madison Mgmt. Grp., Inc., 137 B.R. 275 (Bankr. N.D. Ill. 1992) (financial advisors and consultants are generally "professionals" for § 327 purposes; § 327 procedures should be followed)
- In re Blue Stone Real Estate, Const. & Dev. Corp., 392 B.R. 897 (Bankr. M.D. Fla. 2008) (criticized using § 363(b) to evade § 327/oversight; emphasized court supervision of CRO/consultant compensation)