The US authorities are now advocating for the selection of an impartial examiner in the FTX insolvency case. The US Trustee, which operates under the Department of Justice, has submitted a request to the Third Circuit Appeals Court to reconsider a prior ruling that rejected the selection of an impartial investigator.
The Trustee contends that the court made a mistake when it rejected the appointment request in February. The Trustee believes that the criteria for an examiner have been met, including the requirement that the bankrupt estate which has liabilities that exceed $5 million.
The Independent Examiner Debate
In February, the Bankruptcy Court of Delaware, presided by Judge John Dorsey, rejected the suggestion of having an independent investigator. The judge agreed with FTX and its authorized board of unsecured creditors that hiring an examiner would be too costly and redundant as FTX’s new management, the creditor’s committee, and several federal agencies are already conducting investigations.
The judge stressed that the primary goal of the bankruptcy proceedings is to maximize the returns for FTX’s creditors and customers. He added that every dollar spent on administrative expenses would diminish the amount available for creditors.
However, as per the US Trustee, the expenses related to appointing an examiner do not justify any deviation from the legal requirements. The Trustee firmly believes that an unbiased examiner is essential to uphold transparency during the bankruptcy proceedings and protect the concerns of all the stakeholders.
Role of an US Trustee
The Department of Justice has entrusted the U.S. Trustee with the crucial responsibility of overseeing bankruptcy proceedings and detecting any fraudulent activities. The Trustee’s duties vary based on the type of bankruptcy case. For Chapter 7 bankruptcy cases, the Trustee assigns independent individuals, usually lawyers, to supervise the proceedings.
In Chapter 11 proceedings, the Trustee holds the responsibility of organizing the committee and overseeing the professionals, such as attorneys and accountants, who are involved in the case. Additionally, the Trustee offers assistance and supervises the debtor-in-possession throughout the Chapter 11 process.
