11. Cost Control Failure

Abstract

Previous chapters described competition among some bankruptcy courts for the cases of the largest public companies. To succeed in that competition, the bankruptcy courts must abandon the effort to control fees. Bankruptcy professionals will not steer their clients to courts that will control the professionals' fees. That puts the competing courts in a bind. The Bankruptcy Code and Rules require that the courts control professional fees, specify the precise methods by which they are to do it, and bar the courts from relaxing the requirements. The competing bankruptcy courts have responded to this dilemma by going rogue, routinely authorizing and tolerating professional fee practices that violate the Bankruptcy Code and Rules. Because most bankruptcy judges are unwilling to adopt illegal practices, most bankruptcy courts have dropped out of the competition. The effect has been to clear a path to victory for judges willing to adopt illegal practices. This chapter documents three such practices empirically: the Ordinary-Course-Professionals Practice, the Prior-Payment-Disclosure Practice, and Disburse-First-and-Decide-Later Practice.