Managing Bankruptcy Conflicts — A Critical and Complex Risk Scenario
Posted onMy colleague Max Welsh at InOutsource sent word about his latest article, which I found fascinating: “Managing Bankruptcy Conflicts: Navigating a critical and complex risk scenario” —
- “The heart of conflicts management is identifying potential issues based on diligent analysis, reporting and review. And whether your firm’s conflicts model leaves it to practicing lawyers to review reports generated by your risk team and clear their own conflicts, or you have centralized or decentralized risk staff charged with both identifying potential conflicts and working to resolve them, the big conflicts questions are always a constant:
- Whose interests do we represent — that is, who is a client?
- Whose interests are adverse?”
- “For many types of matters — a straightforward piece of litigation or a simple asset purchase, perhaps — the answers to those two questions likely are straightforward. There might be some question regarding the extension of the attorney-client relationship through affiliates and the conflict check might return some ambiguous information about whether an attorney-client relationship is ongoing, but usually it’s simple to identify whose interests the firm represents and whose interests are adverse.”
- “In bankruptcy matters, however, those issues can be significantly harder to navigate — both to identify and to resolve.”
- “On top of the conflicts in the rules of professional conduct, the bankruptcy laws impose their own set of conflicts and what I will call ‘conflicts-adjacent’ obligations on lawyers involved in bankruptcy proceedings, particularly for lawyers representing the debtor or the Committee.”
- “Like the ethics rules, the Bankruptcy Code prohibits the involvement of lawyers who possess an ‘adverse interest.’ If the lawyer is involved on behalf of the debtor, the Committee, or the Trustee, the Bankruptcy Code also requires that the lawyer meet a standard of disinterestedness; the lawyer/firm cannot itself be a creditor of the debtor, for example.”
- “All of this leads bankruptcy lawyers — and firms that have bankruptcy practice groups — in a complicated position when navigating the conflicts of interest and new business intake process.
- “We have now reviewed some of the problems lawyers and firms face in navigating the conflicts and intake
process when bankruptcy matters are implicated. Here are some solutions…”