Business Bankruptcy--Attorney-Client Relationship


Business Bankruptcy - Simplified Operating Guidelines

A "How-To" Manual

For Non-Bankruptcy Professionals
Page 9
Robert S. Apfelberg, Karrie L. Bercik, Esq.

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Chapter 7. Attorney-Client Relationships

The attorney-client relationship confidentiality privilege ("confidentiality") protects individuals and the management of businesses. In solvent companies, management has the power to waive confidentiality, typically with the approval of its board of directors. However, any new management can waive confidentiality regarding former officers or directors. It is unsettled whether becoming a debtor automatically creates new corporate management.

The United States Supreme Court held that a chapter 11 trustee of a corporation may waive the corporation's confidentiality regarding pre-petition and administrative period communications. Some courts have held that a chapter 11 trustee may similarly waive confidentiality for a partnership. The United States Court of Appeals, Ninth Circuit, for the States of California, Nevada, Arizona, Utah, Washington, Oregon and Hawaii has held that a bankruptcy examiner may waive confidentiality of a debtor corporation, over the objections of its then current management and directors.

If the debtor's bankruptcy counsel discovers management committing violations of bankruptcy rules, they may resign, but may not reveal these violations. Upon debtor's bankruptcy counsel's resignation, the interested parties suspect a bankruptcy code violation. They may request a trustee to assume responsibility for operations and a referral to the Department of Justice for a bankruptcy crime investigation.

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