What does one do with a bankruptcy examiner's report? Multimillion- or multibillion-dollar Chapter 11 bankruptcy cases involving allegations of fraud or other improprieties by management, whether pre- or post-filing, may result in the appointment of an examiner. An examiner is an independent expert appointed by the bankruptcy court to investigate and report on alleged wrongdoing or other issues. The debtor company opens its books, records, and sometimes even documents protected by the attorney-client and work-product privilege to the examiner for inspection, and it pays for the cost of the investigation, which can be quite expensive. Once the examiner completes the investigation, a report is filed with the bankruptcy court, detailing the investigation process and the examiner's findings and conclusions.
In a review of over 550 large Chapter 11 cases between 1991 and 2007 where the debtor held over $100 million in assets and publicly traded securities, cases where an examiner was sought and appointed were analyzed. While data indicated that the appointment of an examiner was somewhat rare—one was requested in 15.1 percent of cases and appointed in a scant 6.7 percent of cases in the sample set—these cases had many similar characteristics. Jonathan C. Lipson, "Understanding Failure: Examiners and the Bankruptcy Reorganization of Large Public Companies," 84 Am. Bankr. L.J. 1, *19, *24 (2010). Most requests for examiners originated from the busiest and largest bankruptcy court districts—Delaware and the Southern District of New York. However, examiner appointments in these districts accounted for only 40.5 percent of total appointments, making it somewhat more likely to have an examiner appointed outside of these districts. On average, cases where an examiner was sought had assets (as described on the debtor's schedules) of four times greater than the sample. Cases were also larger by average assets where the examiner motion was granted. Finally, the study indicated that examiners were rarely sought or granted in cases where allegations of fraud were made, despite the fact that fraud is a specific statutory basis for the appointment of an examiner.
After the examiner's investigation and report have been completed (and paid for), the question arises: Now what? Frequently, parties in litigation seek to admit all or part of the report, which represents the analysis and views of the examiner, into evidence. Consequently, to the extent offered to prove the truth of the matter asserted, the examiner report, by its very nature, may be hearsay. Both bankruptcy courts and non-bankruptcy courts have grappled with the issue of the admissibility of examiner's reports. The result of these rulings is a mixed bag—there is no clear answer to this question. One thing is clear, however—the admissibility of an examiner's report depends on the facts, circumstances, and equities of each situation.