Bankruptcy Trustee and Examiner Investigations: What Companies and Creditors Should Expect

Lesley Brovner & Mark Peters
February 10, 2025

When a company enters Chapter 11 bankruptcy, allegations of fraud, mismanagement, or corporate wrongdoing often trigger demands for an independent investigation. In these situations, a bankruptcy court may appoint a trustee or examiner to investigate the debtor’s affairs and report findings to creditors and the court.

These investigations differ significantly from traditional internal corporate investigations. They are public, court-supervised, and conducted under a statutory mandate that prioritizes transparency, fairness, and creditor protection. Understanding how trustee and examiner investigations work is critical for debtors, boards, creditors, and other stakeholders navigating a complex restructuring.

What Is a Bankruptcy Trustee or Examiner Investigation?

In Chapter 11 cases, companies typically remain in control as a “debtor in possession.” However, under certain circumstances, the Bankruptcy Court may appoint:

  • A trustee, who takes control of the debtor’s operations and investigates misconduct
  • An examiner, whose role is limited to investigation and reporting unless expanded by court order

Under Section 1106 of the Bankruptcy Code, trustees and examiners are required to investigate fraud, mismanagement, and other misconduct and report their findings to creditors and other designated parties.

When Courts Appoint a Trustee or Examiner

Appointment is not automatic. A trustee or examiner is appointed only after a request by a party in interest and a court hearing.

Courts typically consider appointment when:

  • There are credible allegations of fraud or gross mismanagement
  • Creditors lack confidence in current management
  • An independent investigation is necessary to protect the estate
  • Unsecured debts exceed statutory thresholds

Trustees are more likely to be appointed when management cannot be trusted to preserve estate assets. Examiners are often used when independent fact-finding is needed without displacing management.

Strategic Considerations for Debtors and Boards

Debtors and their counsel may have opportunities to influence whether a trustee or examiner is appointed. Courts often consider:

  • Whether alleged wrongdoers have been removed or disciplined
  • Whether current management can operate in creditors’ best interests
  • The cost and disruption associated with court-appointed investigations

In some cases, a debtor may avoid appointment by retaining independent special counsel to conduct an internal investigation in cooperation with creditors. However, this approach carries risks, including potential privilege waivers and public scrutiny.

Investigative Powers and Procedures in Bankruptcy Cases

Broad Investigative Authority

Trustees and examiners have expansive authority to investigate the debtor’s conduct, assets, liabilities, and potential causes of action. Their mandate extends beyond identifying wrongdoing to uncovering claims that may benefit the estate.

Subpoena Power and Formal Examinations

Unlike typical internal investigations, bankruptcy investigators can compel testimony and document production under Bankruptcy Rule 2004. These examinations are investigatory—not adversarial—and allow wide-ranging inquiry into the debtor’s affairs.

Document Review and eDiscovery

Investigations often involve extensive review of financial records, electronic communications, and third-party documents. Courts frequently encourage centralized document repositories to reduce duplication and control costs.

Parallel Internal Investigations During Bankruptcy

Bankruptcy investigations often proceed alongside internal investigations conducted by special committees or independent counsel. While parallel investigations can accelerate fact-finding, they raise concerns about:

  • Duplication of effort and expense
  • Coordination between investigators
  • Preservation of attorney-client privilege
  • Consistency of findings and conclusions

Courts may permit parallel investigations when they serve the estate’s interests and do not interfere with the examiner’s or trustee’s work.

Coordination With Creditors and Other Stakeholders

Trustee and examiner investigations are conducted for the benefit of creditors and other parties in interest. As a result, coordination is unavoidable and often formalized through:

  • Omnibus court orders governing investigative procedures
  • Shared document depositories
  • Investigation subcommittees
  • Court-supervised participation in witness examinations

The trustee or examiner must balance transparency with impartiality while maintaining control over the investigation.

Investigative Reports and Public Disclosure

Trustees and examiners are required to file investigative reports with the court and distribute them to designated parties. Once filed, these reports typically become public documents.

Because of the risk of defamation and other tort claims, investigators must:

  • Focus on factual findings rather than legal conclusions
  • Use neutral, non-inflammatory language
  • Avoid unnecessary attribution of allegations
  • Seek court approval for report distribution

Court-approved distribution can provide important legal protections against liability.

Liability Protection for Trustees and Examiners

Trustees and examiners benefit from strong legal protections, including:

  • Quasi-judicial immunity
  • Absolute privilege for statements made in judicial proceedings
  • Qualified privilege absent malice or bad faith

These protections reflect the public interest in uncovering wrongdoing and preserving estate assets, but they depend on careful adherence to statutory duties and court oversight.