An examiner's roles will vary from case to case. Therefore, there are no hard, fast rules that he can follow to make his evaluation of a particular case a definite success. However, every examiner would do well to keep in mind several factors in order to further his goal of making his examination a success.

First is the "qualification" factor. An examiner should become familiar with what his position entails. A newly appointed examiner should study prior examiner's reports so that he can "get the feeling of and understanding about" the process he is going to engage in, "its duties and procedures and the kind of report in which his activities will culminate."¹ Furthermore, he should speak with and draw from the experience of the office of the U.S. Trustee, as this office can be of great help in connection with fulfilling the examiner's duties.² It may also be able to provide the examiner with some helpful background on the case. If the appointed examiner has previously acted as an examiner, he may already be familiar with and understand the process. However, it can do no harm for the experienced examiner to "brush up" on what the examination process requires.

Second is the "needs" factor. The court that appointed the examiner did so to meet particular needs. An examiner should always keep in mind the reasons that led to the appointment. Generally, the court appoints the examiner because the court and the debtor's creditors want an investigation into factually supported allegations or to retrieve necessary information, but there is not enough evidence to support the appointment of a trustee, and the costs of the examiner have been determined not to be disproportionately high.³ Thus, an examiner needs to be effective but cost-efficient at the same time. He does not want to act in such a way that will unnecessarily run up costs for the estate, but he does want to adequately perform his duties in a complete and timely manner.⁴

Third is the "focus" factor. Throughout the examination, unless otherwise ordered by the court, the examiner does not get involved in the control of the day-to-day operations of the debtor's business.⁵ The debtor remains in possession and continues to run his business, and the examiner should not interfere with that. Thus, an examiner does not want to become over-involved in the debtor's business and run the risk of being viewed as intrusive.⁶ He "should not be a roving critic or unrestrained ombudsman."⁷ Acting as such or becoming over-involved with the debtor's business can lead to problems with the examiner's impartiality and disinterestedness and can lead to friction between the parties and the examiner, causing the examination to be hindered.

Fourth is the "tools" factor. An examiner needs to know and understand the duties given to him by the court's order prior to beginning his examination.⁸ If he does not know what he has been charged with doing, he will never be able to effectively fulfill his position. He should carefully read the order and determine what he needs to do to fulfill the duties given to him.⁹ Each examiner is unique because the duties given him are particularized to his case.¹⁰ Therefore, it is up to each examiner to determine what must be done and, in the event of confusion, it is his duty to ask the court for clarification prior to proceeding.¹¹ He must also stay within the scope of the duties given to him and within the scope of his position as examiner.¹² He must remember that unless the court orders otherwise, he is not charged with, or "permitted to be concerned with, undertaking an evaluation of the feasibility or fairness of the reorganization plan."¹³ He is usually "primarily charged with making inquiries that are designed to lead to an increase in distributions from the debtor's estate by bringing in assets that have been diverted or by recommending litigation that might result in a decrease in claims or an increase in the debtor's assets."¹⁴

Fifth is the "ethics and compensation" factor. In connection with the above, the examiner must be sure he is familiar with the duties required of him that may possibly be outside of the court's order. These are the duties required of him by the Code, the Federal Rules of Bankruptcy Procedure and the common law and may not be found expressly written in the court's order. The examiner must inform the court at any time when a problem may or has arisen with his disinterestedness or impartiality.¹⁵ He must also inform the court of any fee agreements that he has or may have entered into.¹⁶ He must also remember that he owes fiduciary duties, including the duty of loyalty to the shareholders and the creditors.¹⁷

Sixth, an examiner should not be duplicative in his efforts. Duplication leads to unnecessary costs for the estate.¹⁸ For example, he needs to determine if there has been an organization or committee that has been involved with the debtor that has conducted interviews, compiled data, etc.¹⁹ If a committee or organization exists, then he needs to try to retrieve the information and documents from it instead of duplicating all of its work.²⁰ Another type of duplication that must be avoided is the examiner's repetition of his efforts. If an examiner has already compiled particular data or interviewed particular witnesses, he does not need to repeat these efforts unless he reasonably thinks that to do so will lead to new information. At all times, his services need to be reasonably calculated to benefit the debtor's estate at the time rendered.²¹ If the examiner's services are deemed not to be beneficial to the estate at the time they were rendered or if they are deemed to be redundant or excessive, then the fees requested for the services will probably be reduced.²² It does not matter if in the end the services benefited the estate because, in determining this issue, the court does not look at whether the services will ultimately benefit the estate, it only determines whether the services were reasonably calculated to benefit the estate at the time they were rendered.²³

Last is the "quality" factor. The interim and final reports of the examiner should be well-written, well-organized and well-researched.²⁴ His "final report and the work necessary to produce it" should be "sufficiently conclusive and definitive to be deemed reasonably likely to benefit the debtor's estate."²⁵ An examiner should be familiar with how such reports are written, especially since due to the "nature of the customary examiner's charge, being based upon inquiring into the activities of third parties...causes an emphasis in the examiner's report that is different from that found in any other documents in the reorganization or corporate field."²⁶ A report, well-written and communicated, assists a court in being able to better understand and more quickly assess issues affecting the debtor and its estate and move the case to a faster resolution.

An Application: Enron

In his April 8, 2002, order, Judge Arthur Gonzalez ordered that a second examiner be appointed in the Enron fiasco.²⁷ In this order, the judge also authorized the Enron examiner to perform particular tasks, including investigate and report on transactions involving Enron and any entity controlled by Enron, investigate Enron and their professionals, and investigate all transactions involving specified items.²⁸ Neal Batson, an attorney with the Atlanta firm Alston & Bird, was later recommended and approved as the examiner for Enron.

Batson met the qualification factor because he is familiar with what the examiner position requires, the examination process and the law regarding examiners. He has practiced as a bankruptcy attorney for more than 30 years, has been an examiner in a previous large bankruptcy case, and served from 1993-99 as a member of the advisory committee on the rules of bankruptcy procedure of the judicial conference of the United States.²⁹

Some of the particular needs of Enron were to investigate the allegations surrounding management and to recoup the losses due to mismanagement and questionable transactions as well as a host of other problems. Batson seems to have done well because his investigations complied with his orders from the court and were calculated to find out how severe the fraud and mismanagement were. He has also proposed several means of recovering assets for estates. However, there may be problem areas of the business that were not thoroughly investigated—for example, the extent to which there were professionals involved in some of the transactions.

Batson remained focused on what his job required of him and did not become over-involved in the debtor's business. He was informed about the debtor's business, as can be seen in his four reports. He involved himself in the business only as much needed for him to delve into the prior transactions and other problems to complete his investigation as ordered by the court.³⁰

In his investigation of Enron, Batson employed the tools of his position in an effective, ethical manner. He understood his duties, including those not expressly written in the court's order, and carried them out effectively. We know that he read the order, as he reproduces part of it in the first of his reports.³¹ He stayed within the scope of his duties, which was not hard because Judge Gonzalez gave him wide latitude in the investigation.³² His investigation lasted for 18 months and produced four in-depth reports totaling more than 4,500 pages, "relying on 266 sworn transcripts and 40 million pages of documents."³³ Batson has recommended several avenues that could result in the recovery of billions of dollars for the Enron estate.³⁴ He hired many other professionals to assist him in the investigation, which probably allowed the investigation to go faster (and to be more costly).³⁵ In fact, his efforts in the investigation have been praised as being in-depth and providing valuable tools that others can use to benefit the company.³⁶ However, some shareholders and employees are disgruntled by the costs and efforts of the investigation.³⁷ This is a result of the fact that shareholders did not get anything due to the costs³⁸ and the belief that some of the investigation was duplicative.³⁹

Some questions have been raised regarding whether Batson's efforts were duplicative at times. He conducted hundreds of interviews and depositions over the course of his investigation.⁴⁰ Some of those interviewed by Batson have called his efforts "overdone," "overkill" and wearing on those involved.⁴¹ He has been criticized for his continuous coverage of the same topics over and over again.⁴² Substantial creditors do not seem to have voiced any objections, so the few who are outspoken about their disapproval of Batson's tactics may not have any recourse.⁴³ On the other hand, the continuous coverage of topics could have been a strategic tactic used by Batson to finally get the answers he wanted and needed to complete his investigation properly.

Questions also arise on the topic of whether his services were reasonably calculated to benefit the estate at the time they were rendered and whether he was effective while being cost-efficient.⁴⁴ The costs of his investigation are large. As his investigation proceeded and his fee applications appeared, just how large became an issue on many people's minds. At the end of the 18-month examination of Enron, the legal tab from his law firm was $87.5 million.⁴⁵ According to court documents, the firm billed $496,000 for the almost 1,700 hours spent by the firm's employees preparing the bills.⁴⁶ The bill for Batson alone is $1.8 million.⁴⁷ However, the effectiveness of his investigation could also be large, which can be seen by just a few examples from his investigation. He "produced four [in-depth] reports totaling more than 4,500 pages."⁴⁸ Based on his investigations and reports, the Enron estate may be able to recover a total of $4.6 billion from numerous companies and committees. Actions to recover $957 million from Whitewing Associates and $84 million from Ken Lay (the former chairman) and his wife have already commenced.⁴⁹ Batson also found that Enron could recover $53 million that was paid to employees during the 30 days prior to the bankruptcy⁵⁰ and that if Enron redefined certain transactions, it could lead to a $500 million recovery.⁵¹ These are just some of the examples of what Batson produced.

His work has been called "overkill" by some, but it continues to be hard to make this determination when we do not know the final outcome of Enron.⁵² A key question, according to Nancy Rapoport, Dean of the University of Houston Law Center, is whether Batson's efforts will recover enough cash and assets to justify his expenses.⁵³ If Batson's efforts return billions of dollars to the Enron estate, most people will probably say that his expenses are justified; however, if his efforts do not return large amounts, the expenses will probably be criticized by many as being too much. In sum, the answer to whether Batson was effective and cost-efficient will not be resolved until Enron is finalized.

Finally, there is little doubt that Batson's reports were well-written, well-organized and well-researched. His reports provided an in-depth evaluation of the issues raised and provided valuable tools for the court and others to begin the recovery of money for the estate.⁵⁴ His reports were so well done that he has received praise for them.⁵⁵

Conclusion

A chapter 11 examiner is a unique figure in bankruptcy that will, over time, become as well known in bankruptcy law as the trustee is today. For now, the case law, rules and opinions regarding examiners will continue to evolve and develop as each new examiner is appointed. An examiner should be able to have greater success in fulfilling his role to the estate and assisting the estate if he adheres to the points outlined in this article. Overall, keeping in mind that his purpose is to benefit the estate, he must use his best judgment in deciding what to do, how to do it and when to do it. He should view his appointment as an honor bestowed upon him by a court that believes he is the best person for this case, and he should strive to live up to that honor.

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Footnotes

¹ Kaplan, supra note 31 at 442 (see Part I). Return to article

² Id. Return to article

³ In re Gilman Servs. Inc., 46 B.R. 322, 322 (Bankr. D. Mass. 1985). Return to article

⁴ Ch. 11 Reorg. 2d Ed. §7.9. Return to article

⁵ Zaretsky, supra note 2 at 908 (see Part I). Return to article

⁶ See Kaplan, supra note 31 at 440 (discussing an examiner who dominated proceedings and acted as a type of glorified party to the case) (see Part I). Return to article

⁷ Id. at 447. Return to article

⁸ In re Big Rivers Elec. Corp., 213 B.R. 962 (Bankr. W.D. Ky. 1997). Return to article

⁹ See Kaplan, supra note 31 at 441 (see Part I). Return to article

¹⁰ Id. Return to article

¹¹ See Id. Return to article

¹² Big Rivers, 213 B.R. 962. Return to article

¹³ Kaplan, supra note 31 at 444 (see Part I). Return to article

¹⁴ Id. Return to article

¹⁵ See Big Rivers, 355 F.3d 415. Return to article

¹⁶ See Id. Return to article

¹⁷ Id. Return to article

¹⁸ Id. at 442-43. Return to article

¹⁹ Id. Return to article

²⁰ Id. (discussing that the SEC had done an investigation prior to his appointment, and that to repeat the SEC's efforts would be duplicative and incur unnecessary expenses for the estate). Return to article

²¹ See Kovalesky v. Carpenter, 1997 WL 666299 (Bankr. S.D.N.Y 1997). Return to article

²² See, e.g., Id.; see, also, 11 U.S.C. §330 (compensation of officers). Return to article

²³ Kovalesky, 1997 WL 666299. Return to article

²⁴ Id. (discussing the examiner's report being beyond dispute under §330). Return to article

²⁵ Id. Return to article

²⁶ Kaplan, supra note 31 at 444 (see Part I). Return to article

²⁷ Order Pursuant to 11 U.S.C. §§1104(c) and 1106(b), Directing Appointment of Enron Corp. Examiner, In re Enron Corp., No. 01-16034 (Bankr. S.D.N.Y. 2002), available at http://www.elaw4enron.com, docket entry no. 2836 [hereinafter Appointment Order]. Return to article

²⁸ See Id. In part, the order authorized and directed the examiner to inquire into, inter alia, all transactions...(i) involving special-purpose vehicles or entities created or structured by the debtors or at the behest of the debtors (SPEs) that are (ii) not reflected on the Enron Corp. balance sheets, or that (iii) involve hedging using the Enron Corp. stock, or (iv) as to which the Enron examiner has the reasonable belief are reflected, reported or omitted in the relevant entity's financial statements not in accordance with generally accepted accounting principles, or that (v) involve potential avoidance actions against any pre-petition insider or professional of the debtors. Id. Return to article

²⁹ "Batson Recommended as Enron Examiner," BCD News & Comment (June 6, 2002). Return to article

³⁰ See First Interim Report of Neal Batson, In re Enron Corp., No. 01-16034 (Bankr. S.D.N.Y. 2002), Second Interim Report of Neal Batson, In re Enron Corp., No. 01-16034 (Bankr. S.D.N.Y. 2003); Third Interim Report of Neal Batson, In re Enron Corp., No. 01-16034 (Bankr. S.D.N.Y. 2003), and Final Report of Neal Batson, In re Enron Corp., No. 01-16034 (Bankr. S.D.N.Y. 2003). Return to article

³¹ First Interim Report of Neal Batson, In re Enron Corp., No. 01-16034 (Bankr. S.D.N.Y. 2002). Return to article

³² Id. Return to article

³³ Maizel, Samuel R., "Examiners on the Rise; Courts Increasingly Appoint Professionals in Big Cases to Report on Irregularities," Nat'l. Law J., Vol. 26, No. 59 (Nov. 22, 2004) at 18. Return to article

³⁴ Id. Return to article

³⁵ Lin, Anthony, "Enron Examiner Billed Estate for $100 Million; Batson Seeks End of Appointment for Inquiry," N.Y.L.J. (Dec. 5, 2003) at 1. Return to article

³⁶ See Rankin, supra note 32. Return to article

³⁷ See Id.; see Berger, supra note 39. Return to article

³⁸ See Rankin, supra note 32. Return to article

³⁹ See Berger, supra note 39. Return to article

⁴⁰ Id. Return to article

⁴¹ Id. Return to article

⁴² Id. Return to article

⁴³ See Id. Return to article

⁴⁴ See, e.g., "The Man Investigating Enron Knows How to Bill," Consumer Bankr. News Vol. 12, No. 15 (Apr. 18, 2003). Return to article

⁴⁵ Rankin, Bill, "Enron's Legal Tab Close to $1 Billion; Atlanta Firm Among Top Recipients," The Atlanta Journal-Constitution (Nov. 14, 2004) at 1A. Return to article

⁴⁶ Id. Return to article

⁴⁷ Id. This is an average amount of $586 an hour. Return to article

⁴⁸ Id. Return to article

⁴⁹ Id. Return to article

⁵⁰ BCD News & Comment, Vol. 7, No. 2 (Mar. 28, 2003). Return to article

⁵¹ "Enron First Examiner's Report Questions Financial Dealings, Banks," BCD News & Comment, Vol. 40, No. 4 (Oct. 11, 2002). Return to article

⁵² Berger, Eric, "Lawyer's Inquiry Is Called 'Overkill,'" Houston Chronicle (May 21, 2003), available at http://www.chron.com/cs/CDA/story.hts/special/enron/1897436. Return to article

⁵³ Id. Return to article

⁵⁴ See Rankin, supra note 32. Return to article

⁵⁵ Id. Return to article