Delaware Business Bankruptcy Report: Morris James LLP Lawyers and Attorneys

In re Winstar Comms., Inc., Nos. 01-1430 (KJC)–01-462(KJC), -- B.R. --, 2007 WL 4268775 (Bankr. D. Del. Dec. 4, 2007) (Judge Kevin J. Carey)

Professionals retained by the Chapter 7 Trustee of the estate of debtor Winstar Communications, Inc. filed a motion to approve a hedging transaction with a lender under which they would receive a fixed price payment from the lender in return for the lender paying all or some of the contingency fees that counsel would receive for representing the trustee in an adversary proceeding.  The United States Bankruptcy Court for the District of Delaware found that this transaction was a form of fee sharing that was prohibited under 11 U.S.C. § 504.  Accordingly, the Court denied the motion, without prejudice to the professionals’ ability to seek the approval of a revised arrangement.

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In re Argose, Inc., 377 B.R. 148 (Bankr. D. Del. 2007) (Judge Mary F. Walrath)

The Trustee of the debtor’s Chapter 7 estate entered into a stipulation with the debtor’s secured lenders for the payment of fees to Trustee’s counsel. The stipulation permitted a carve-out for Trustee’s counsel of $50,000, which could be renegotiated depending on the “complexity” of the sale of the debtor’s assets. The stipulation also carved out $50,000 for unsecured creditors. The Court entered an order approving the stipulation. After asset sales that returned far less for the estate than anticipated, Trustee’s counsel submitted final fee applications for $81,393.50. After the Court approved the application, the Trustee paid the fee to his counsel. The Trustee then moved to modify the order approving the stipulation to allow the higher fees, and represented to the Court that, as a consequence, after payment of the Trustee’s commissions, there would be insufficient funds to pay to the unsecured creditors their full $50,000 carve out. The Court denied the motion, and the Trustee moved for reconsideration. On reconsideration, the Court reversed itself, finding that the stipulation permitted this course of action.

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