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Employment of Professionals

The Bankruptcy Code governs a trustee’s or debtor in possession’s employment of attorneys, accountants, appraisers, auctioneers and other professional persons to represent or assist in carrying out duties under the Bankruptcy Code. Generally, the trustee or debtor in possession had broad latitude in the selection of professional persons to be employed. The Bankruptcy Code authorizes the employment of professional persons only to the extent that such persons do not hold or represent an interest adverse to the estate.

The Bankruptcy Code requires that the trustee file with the court an application specifying the facts demonstrating the necessity for the employment, the name of the person to be employed, the reasons for the selection, the professional services to be rendered, and any arrangement for compensation. The application for employment as well as an accompanying verified statement of the professional person to be employed must set forth all known connections of the applicant or professional person with the debtor, creditors, any other party in interest, their respective attorneys and accountants, the United States Trustee, or any person employed by the United States Trustee. However, a person will not be ineligible for employment as a professional solely because the person was an investment banker for a security of the debtor, or was an attorney, director, officer, or employee of such investment banker.

An application for employment must be filed with the court prior to performance of services by the professional sought to be employed. Failure to obtain prior court approval may result in a denial of fees for any pre-approval services.

The determinative question in approving the employment of a professional person is whether it is reasonably necessary in the administration of the estate to have professional persons, such as attorneys or accountants, employed. An attorney for a trustee should not be employed unless the attorney’s special professional skills are necessary for the protection and benefit of the estate or will further the aims of the case. The court makes this determination, and a refusal to approve the employment should not be interfered with on appeal in the absence of an abuse of discretion. Nevertheless, the actual selection of attorneys or other professional persons rests with the trustee.

An attorney, accountant, or other professional person may be employed only to perform professional services. Attorneys and accountants may not be employed and will not be compensated for services that the Bankruptcy Code identifies as administrative duties of a trustee. Professionals may not assume the duties of a trustee and then claim compensation for performing legal, accounting, or other professional services.

Copyright 2012 LexisNexis, a division of Reed Elsevier Inc.