Subchapter V Trustee: 6 Things They Do and 4 They Cannot

When you file subchapter V, a trustee is also assigned to your case. You have to have one in a SubV, whereas you probably don’t in a regular 11. Their main job is to facilitate you and your creditors agreeing on a payment plan. They’re not an adversary. Subchapter V trustees do not have powers to run the business day to day. There are six things your trustee will do, and four they cannot. Your SubV trustee has certain duties they must do, like appearing at some hearings. They have certain powers, like speaking on some issues, they can choose to exercise or not.

What the Job Is

One way to look at the trustee is: they broker a deal between you and your creditors. This is the most important job of a trustee. The trustee talks directly to you and your lawyers, and to your creditors and their lawyers. You may be all in the same room, or the trustee can call lawyers in and take them to a separate conference room. Sometimes they’ll walk around with the lawyers to one side of the table or another, taking their lawyers’ offers to each other and figuring out what works. They try to look ahead and assess whether the business will be viable in the long term, too. The Code says what the job is, but not much about how. They have an inherent power to pick which things to take to court and which to ignore, if they think it serves the process.

Just like a judge or litigator, the trustee needs to be present at key hearings to make sure their viewpoint is heard by the court. They must be on hand at the status conferences where they might all get together and make plans; when the value of property, and any liens on it, get settled; when they first decide to confirm the plan, or later try to change it; and when anything goes up for sale. They’re invited to opine on any other issue before the court, too. The status conference has to be held within 60 days after the order for relief. As long as the delay isn’t the business’s fault, though, the court can extend that.

The trustee checks all the proofs of claim which come in, and they’ll oppose improper claims if they find them. They only bother when it makes sense. They can oppose the debtor’s discharge if they think it advisable.

The trustee can ask the court’s permission to investigate if the trustee wants to look deeper into something going on in the business. Then, and only then, if the court orders them to investigate, they get to go and see how the business is doing for real, see how much money and debt it’s got, and study its finances. They do this investigation if it can get them closer to a payment plan.

Before the plan is confirmed, the trustee will usually hold on to any money you pay in, until the plan gets confirmed or denied. Or the judge could authorize that some of it be used to pay some secured creditors first, to keep up their collateral. Assuming you get confirmed, the trustee watches to make sure the payments you promise start to roll on time.

If the court removes you from possession, then the trustee’s powers broaden. The trustee gets to run the business, sell assets, borrow money, recover property, undo certain transfers, and even abandon property.

Within Their Lane

The bankruptcy code keeps the trustee within their lane. Here’s a phrase which comes up over and over: “debtors in possession.” Unless and until the court removes you from possession, you stay running your company. You stay in control of business decisions and operations.

The trustee can’t unilaterally put a plan on the table. Only you can do that. But you do have to file it soon. Usually it’s due within 90 days of the order for relief. The court can extend the time to file if they believe the delay is not your fault.

They can’t set their own pay, either. Whenever they want a fee, they file an application and wait on the court’s answer. The usual fee limits on how much they can take, which are tied to how much money they distribute to creditors, don’t apply to a case-by-case trustee. In other Chapter 11 cases, the debtor has to pay “U.S. Trustee quarterly fees”. But in Subchapter V you are excused from this requirement.

Just like everyone else, your trustee can’t stay on forever. If the plan is consensual, their role ends when the plan is substantially consummated, and the business gives the court and everyone in the case notice of that within two weeks.

In practice, during the case you’ll be talking to someone who wants to come to a deal with you, probably wants to understand the business and your debts. So be ready for a lot of cooperation and discussion as everyone tries to figure out a plan of reorganization together.