CTI Foods – U.S. Trustee Objects to Retention of Professionals, Harbinger of Stricter Rules in Region 3 and beyond?

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April 2, 2019 – The U.S. Trustee assigned to the CTI Foods cases filed multiple objections to the Debtors’ application for retention of professionals, arguing that those professionals have failed to properly follow rules relating to disclosing parties in interest. The Centerview objection adds a further troubling complaint for professionals serving as investment bankers, that Centerview has improperly characterized its fiduciary duty vis-a-vis the Debtors.

Each of the four objections are substantially identical (except as to the fiduciary duty point) and suggest, in Region 3 at least, that professionals are about to be held to a higher (albeit already required) standard.

The Centerview objection, signed on behalf of U.S. Trustee Andrew Vara, reads, "Rigorous compliance with professional retention rules is critical to the integrity and transparency required of the bankruptcy system.  Bankruptcy Rule 2014 requires that professionals seeking to be employed under 11 U.S.C. § 327 file a verified statement of “all of the person’s connections” to parties in interest. The Debtors seek to employ Centerview as their investment banker, but Centerview’s connection disclosures are incomplete and do not satisfy the requirements of Rule 2014.  Centerview fails to name several parties in interest that it previously or currently represents, citing concerns of confidentiality.  It is not adequate for Centerview to simply assert that certain of its connections are confidential, without also seeking leave of Court, pursuant to 11 U.S.C. § 107(b), to file such names under seal.  In addition, the U.S. Trustee objects to the term of Centerview’s engagement letter with the Debtors that provides that Centerview is not acting in a fiduciary capacity as to the Debtors."

The U.S Trustee's objections were filed in respect of the following proposed retentions:

  • Centerview Partners LLC as investment banker [Docket No. 108]
  • Weil Gotshal & Manges LLP as counsel [Docket No. 109]
  • Young Conaway Stargatt & Taylor LLP as co-counsel [Docket No. 110]
  • AP Services, LLC as chief restructuring officer [Docket No. 111]

The Court scheduled a hearing to consider the objections for April 8, 2019, with objections due bu April 2, 2019.

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