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GAO Report: Stakeholders Have Mixed Views on Fee Guidelines in Large Chapter 11 Cases

September 23, 2015 | Posted in : Bankruptcy Fees / Expenses, Billing / Fee Guidelines, Billing Practices, Billing Record / Entries, Expenses / Costs, Litigation Management, Study / Report

A recent GAO Report, “Corporate Bankruptcy: Stakeholders Have Mixed Views on Attorneys’ Fee Guidelines and Venue Selection for Large Chapter 11 Cases (pdf),” finds that bankruptcy professionals have “mixed perspective” on the value of attorneys’ fee guidelines for large (assets and liabilities over $50 million) Chapter 11 cases.

The U.S. Trustee Program (USTP), which created the fee guidelines in 2013 to address concerns of excessively high attorneys’ fees in big cases, issued a response to the report in which it addressed some criticisms of the billing guidelines.

Director of the USTO Clifford J. White said in his September 3 statement (pdf) that some bankruptcy professionals “continue to misunderstand certain aspects of the [guidelines]” and that some of the criticisms “go beyond the purpose of the [g]uidelines and reflect general frustrations about the nature of the bankruptcy process and the high cost of [C]hapter 11 case administration.”

The GAO report said there were generally few problems complying with the fee guidelines in the 94 large cases filed since the guidelines went into effect.  But the GAO found that “[b]ankruptcy stakeholders had mixed perspectives of the overall value of the guidelines and of their potential effect on the efficiency and transparency of the Chapter 11 bankruptcy process, or the fees awarded.”

“For example,” the GAO said, “stakeholders with a positive view said the budgeting provision encourages early communication in a case, while those with a negative view said that the unpredictability of bankruptcy cases limit the value of a budget.”

White noted in his statement that the “GAO also correctly acknowledge[d] that the recency of the promulgation of the [guidelines] and their application to fewer than 100 cases reviewed in the report makes definitive conclusions both difficult and premature.

White also made three general observations about the report: 1) “[i]nitial opposition to the guidelines by bankruptcy attorneys appears to be yielding to compliance and improved billing practices[;]” 2) “[t]he USTP should continue its outreach to explain the guidelines to the bankruptcy community[;]” and 3) “[t]he guidelines address matters relating to professionals compensation and cannot be expanded to address other legitimate concerns parties may have with the [C]hapter 11 process.”