Page 32 - Bankruptcy Volume 1

Declaration or Verified Statement of Proposed Accountant

The application to employ an accountant must be accompanied by a declaration or verified statement of
the person to be employed setting forth the person’s relationship with the debtor, creditors, any other
party in interest and their respective attorneys and accountants, the court, the U.S. Trustee, and any per-
son employed in the Office of the U.S. Trustee. It also includes a declaration that the accountant has no
agreement to share the compensation received from this employment with any other person (which
would be in violation of Section 504 of the Bankruptcy Code) other than members of his or her firm.

Order Approving Employment

In many districts, it is customary for the party filing a motion to file a corresponding form of order ap-
proving the requested relief. Assuming the bankruptcy judge approves the employment application, the
bankruptcy judge will either sign the order as submitted, sign the order after making modifications, or
issue a completely new order.

Timing of the Application

The employment application and order thereon must be submitted to the court as soon as the terms of the
employment are agreed upon between the accountant or financial adviser and the trustee, debtor, or offi-
cial committee. The reason for this is very simple: no compensation will generally be paid for services
rendered before the court approves the employment. However, courts may permit the use of nunc pro
tunc (that is, retroactive) orders under certain circumstances, such as excusable delay in obtaining the
requisite court approval. Some courts are more lenient than others in this respect. It is generally better to
be safe and not do any work until the employment application is granted.

Inadequate Disclosure

Accountants and financial advisers who are eager to be engaged in a bankruptcy may choose to provide
only a minimal amount of detail regarding relationships for fear of denial of the application. Resist this
notion. Any and all relevant relationships with the debtor, trustee, major creditors, and other parties in
interest should be disclosed to the court in an accountant’s or financial adviser’s declaration of proposed
employment. Procedures to identify and address circumstances or relationships that might disqualify the
accountant should be developed before seeking involvement in bankruptcy matters. If an accountant be-
comes aware of relationships with a creditor, debtor, or other party in interest after filing the application
for employment, he or she should discuss the matter with legal counsel and file an amended declaration
as soon as possible.

Other Retention Issues

Prior employment by the debtor. Section 1107(b) of the Bankruptcy Code provides that a person is not
disqualified for employment by the debtor-in-possession solely because of such person’s employment or
representation of the debtor before the commencement of the case. However, many courts have held that
an accountant is not disinterested if the accountant or his or her firm is a creditor of the debtor because
of unpaid invoices for prepetition services. Often, this issue is resolved through the waiver by the ac-
countant of any entitlement to an unpaid claim for services rendered prepetition.

Effect of concurrent employment by a creditor. An accountant’s previous or concurrent retention by a
creditor is not, by itself, a bar to retention by the trustee absent an actual conflict of interest (11 USC

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