A Delaware bankruptcy court has held that a special committee's advisors cannot withhold privileged documents from a liquidation trustee appointed pursuant to a chapter 11 plan. This decision serves as an important reminder that a bankruptcy trustee, including a trustee appointed to manage a liquidating trust established pursuant to a chapter 11 plan, may have exclusive control over a company's privilege and that executives, board members, and their advisors may be unable to withhold documents from the trustee. Importantly, this decision highlights that even a company's establishment of a special, independent committee with its own advisors may not be effective in shielding otherwise privileged communications from disclosure.
In In re Old BPSUSH Inc.,1 a company's board of directors formed an audit committee (the "Audit Committee"), which investigated questions surrounding senior management's financial reporting. The Audit Committee retained separate legal counsel, and its legal counsel retained financial advisors.2 The Audit Committee's advisors reviewed millions of documents, conducted multiple interviews, and generated a substantial amount of work product.3
The company subsequently filed bankruptcy.4 In bankruptcy, the company confirmed a chapter 11 plan that created a liquidation trust and vested the trust with all of the company's "rights, titles, and interests in any Privileges," which the plan defined to include "any privilege or immunity" of the company.5 After the chapter 11 plan was confirmed and a trust was established, the liquidation trustee filed a motion to compel the Audit Committee's legal and financial advisors to turn over all records related to the investigation.6
The Audit Committee's advisors objected to the trustee's motion, arguing that the Audit Committee "was organized as an independent body, created and governed by a separate charter, with the right and power to engage independent counsel with separate attorney-client privileges and other protections"; therefore, the advisors argued that the liquidation trustee did not acquire the Audit Committee's privileges.7 Accordingly, the advisors withheld attorney notes of employee interviews, draft memoranda, the financial advisors' internal analytics and work papers, and communications/emails with Audit Committee members.8
Bankruptcy Court's Analysis
The Delaware bankruptcy court began its analysis by recognizing the longstanding principle established by...