A thorough discussion of professional ethics for Bankruptcy Attorneys.

1. Being Green:
Ethical Pitfalls
for
Bankruptcy
Novices
Hon. Meredith S. Grabill • U.S. Bankruptcy Court;
Eastern District of LA • New Orleans
Ashley L. Belleau • Lugenbuhl, Wheaton, Peck,
Rankin & Hubbard • New Orleans
Benjamin W. Kadden • Lugenbuhl, Wheaton, Peck,
Rankin & Hubbard • New Orleans
April 20, 2022 | 3:35-4:35 (1 credit; ethics)

2. Agenda
01. Who is your
client?
02. Common
conflicts for
debtor’s
counsel
.
03. Common
conflicts for
creditor’s
counsel
.
04. Common
conflicts for
committee’s
counsel
05.
Engagement
letters and
professional
applications
2 Bankruptcy Ethics April 20, 2022

3. I. Who is your
client?
The start of any ethics
inquiry is determining to
whom you owe your loyalty.
April 20, 2022
Bankruptcy Ethics
3

4. Who is your client?
 Debtor(s) or Bankruptcy Trustee (e.g., DIP, Ch. 7 Trustee)
 Equity Holder(s) (e.g., 100% Owner, Minority Shareholder)
 Unsecured Creditor(s) (e.g., Trade Creditor, promissory note holder)
 Secured Lender(s) (e.g., DIP Lender, Institutional Lender, Lien
Holder)
 Official (or ad hoc) Committee (e.g., UCC, Ad Hoc Lienholders’
Cmte.)
 Post-Confirmation Trustee (e.g., Liquidation Trustee)
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5. II. Common
conflicts for
debtor’s counsel
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6. Debtors: Representing the Company
and its Estate, Not the Principals
 An attorney serving as bankruptcy counsel to a corporate
debtor often faces conflicts that preclude him from
effectively representing a debtor’s principals.
 Conflicts frequently occur where one or more principal is a
guarantor of a debt for which the debtor is a primary
obligor.
 Debtor’s counsel should review for potential conflicts,
identify these conflicts, and recommend equity holders or
controllers obtain conflict counsel where appropriate.
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7. Debtors: Plans That Are in the Best
interest of the Debtor, Not the
Principal
 Conflicts of interests between bankrupts and their
principals often come to the forefront during the
formation of a chapter 11 plan.
 How do you get buy-in from the Debtor’s principals
on a plan that is in the best interest of the company
or the estate, but not them as individuals?
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8. III. Common
conflicts for
creditor’s counsel
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9. Creditors: Conflicts Between and
Within Classes
 Attorneys frequently represent more than one
individual creditor in a case.
 Doing so can make representation more efficient.
 Unsecured creditors may be happy to spread the
cost of having an attorney monitor a fast-
developing and complex bankruptcy case across
multiple constituents.
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10. Creditors: Conflicts Between and
Within Classes
 An obvious conflict for an attorney representing
multiple creditors may arise when two or more
creditors are separated into different classes and
are receiving disparate treatment in a proposed
Chapter 11 plan.
 However, a conflict may even arise where creditors
are in the same class.
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11. IV. Common conflicts
for committee’s
counsel
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12. Committees: Solicitation and
Conflict Checks
 In a survey of ABI members, of those who attended
an organizational committee meeting, the vast
majority (84%) reported attending after receiving
the invitation of an unsecured creditor.
 Candidates for committee counsel are rarely
completely unconnected to stakeholders in a
Chapter 11 case.
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13. Committees: Solicitation and
Conflict Checks
 It is critical that attorneys soliciting to become
committee counsel conduct a conflicts check prior
to being hired.
 It is not uncommon that counsel hired by a
committee reports that the attorney has a conflict
only after a fulsome conflicts review.
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14. Committees: Solicitation and
Conflict Checks
 Conflicts may be small (e.g., attorney for post-confirmation
trust represents or represented a creditor subject to an
avoidance claim) or large (e.g., attorney has debtor’s first-
priority secured lender as a current client and cannot be
adverse).
 Even common conflicts that can be cured by hiring
conflicts counsel should be disclosed before hiring.
 Often, they can be identified by checking against available
documentation (e.g. schedules, SOFA, list of top
creditors).
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15. “
Ninety-five percent (95%) of respondents
reported performing a conflicts check prior to
any official committee or ad hoc committee
solicitation. Only four percent (4%) of
respondents reported seeking advice from
their state bar ethics hotline.
– ABI Nat. Ethics Rep. 016 TXCLE-ABB 7.1
Solicitation and Conflict Checks
”

16. Committees: Representing the
Class, Not Its Members
 As mentioned, most attorneys are presented with the
opportunity to work for a committee through a creditor
(often an existing client) with a claim against the debtor.
 When an attorney accepts an opportunity to represent a
committee, the attorney has an obligation to make
creditors understand the attorney’s loyalty is owed to the
committee—which is a fiduciary to creditors as a
class—and not to any individual member.
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17. Committees: Representing the
Class, Not Its Members
 It is important that individual members understand where
committee’s counsel’s loyalty is owed because what is
good for the class may frequently be bad for an
individual creditor.
 e.g., preference claims—a payment to an individual
creditor is unwound so the proceeds can be shared
among creditors pro rata, as a class.
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18. Committees: Advising the
Committee of Fiduciary Duties
 One of committee’s counsel’s primary obligations is to
advise the members as to their fiduciary obligations.
 Committee members are often new to bankruptcy and
may or may not be well versed in the concept fiduciary
obligations generally depending on their own individual
background and experience.
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19. Committees: Confidential
Information
 Committee’s counsel is often given access to
information subject to varying levels of confidentiality.
 Confidential information given to committee’s counsel
may be for “attorneys’ eyes only,” restricted to committee
members, or restricted to all signatories to a protective
order or confidentiality agreement.
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20. Segregating
Confidential
Information
• Committee members must be advised that
they cannot use information restricted to
the committee to obtain an advantage for
themselves as individual creditors.

21. Committees: What to Do When a
Member Acts Out of Bounds
 Committee members, even well-advised ones, may
commit ethical infractions both mundane and severe.
 As counsel, work to quickly identify potentially unethical
or illegal conduct by members. You may wish to seek an
ethics advisory opinion from the Louisiana State Bar
Association (1-800-421-5722).
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22. Committees: What to Do When a
Member Acts Out of Bounds
 Minor infractions may be remediated by a
clarifying instruction from the attorney to the
member.
 Major ethical infractions or possibly illegal activity
should be reported to appropriate parties,
including the U.S. Trustee and even the court.
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23. Committees: Reporting Illegal
Member Conduct
 In re: Neiman Marcus Group LTD LLC, et al., No.
20-32519 (DRJ) (Bankr., S.D. Tx.)
• Daniel Kamensky, a former bankruptcy attorney
and the founder and former manager of New
York hedge fund Marble Ridge Capital, joined
as a member of the Neiman Marcus’ official
committee of unsecured creditors.
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24. Committees: Reporting Illegal
Member Conduct
 In re: Neiman Marcus Group LTD LLC, et al., No. 20-
32519 (DRJ) (Bankr., S.D. Tx.)
• Mr. Kamensky negotiated with the committee an offer to
provide a cash-out option to unsecured creditors for a
class of shares being offered to these creditors as a part
of a reorganization plan.
• When Mr. Kamensky learned of a rival bidder, he
pressured this bidder to abandon its higher bid for the
assets so that Marble Ridge could obtain those assets
for a lower price.
24 Bankruptcy Ethics April 20, 2022

25. Committees: Reporting Illegal
Member Conduct
 In re: Neiman Marcus Group LTD LLC, et al., No. 20-
32519 (DRJ) (Bankr., S.D. Tx.)
• Counsel for the committee was made aware of this
conduct by counsel to the rival bidder.
• Counsel for the committee detailed the
circumstances of these events in a letter to the
U.S. Trustee, which was ultimately filed in the
bankruptcy docket.
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26. In re: NEIMAN
MARCUS GROUP
LTD LLC, et al.,
20-32519
• Result: Daniel Kamensky was
sentenced to six months in federal
prison for engaging in fraud and
extortion.

27. V. Engagement Letters
and Professional
Applications
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28. Engagement Letters and
Professional Applications
 Many of the disclosures discussed today can be
incorporated into an engagement letter.
 A well-written engagement letter will allow you to
clarify the scope of your duties and ethical
obligations at the start of your representation.
28 Bankruptcy Ethics April 20, 2022

29. Thank you
Hon. Meredith S. Grabill • U.S. Bankruptcy Court;
Eastern District of LA • New Orleans
Ashley L. Belleau • Lugenbuhl, Wheaton, Peck, Rankin
& Hubbard • New Orleans
Benjamin W. Kadden • Lugenbuhl, Wheaton, Peck,
Rankin & Hubbard • New Orleans
April 20, 2022 | 3:35-4:35 (1 credit; ethics)
Materials Prepared by Coleman Torrans, Lugenbuhl, Wheaton,
Peck, Rankin & Hubbard