On Nov. 18, in In re Adelphia Communications Corp., the U.S. Bankruptcy Court for the Southern District of New York addressed the question of whether ad hoc committees and individual creditors of a debtor are entitled to reimbursement of their legal fees and other professional expenses where the debtor’s confirmed and effective Chapter 11 plan of reorganization authorized payment of creditors’ “reasonable” fees and expenses.
According to the opinion, 14 ad hoc committees and individual creditors collectively sought more than $88 million in reimbursement of their legal fees and expenses pursuant to a provision of the plan. The trustee objected to the application for reimbursement, arguing that the creditors had not made a “substantial contribution” to the estate that would entitle them to reimbursement of their legal fees. The court held (1) that reasonable fees may be paid to creditors when the Chapter 11 plan so provides; and (2) fees are “reasonable” when expended solely to increase an applicant’s personal recovery in a claim against the estate, but are not “reasonable” when expended on activities: (i) unrelated to recovering a claim; or (ii) that go beyond mere advocacy to behavior that is abusive, irresponsible or destructive to the estate.
Intercreditor Feuding
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