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 Intraoffice conferences for which more than one professional charged for his or her time

 Inadequately documented expenses that fail to describe the necessity for the expenses and the re-
sulting benefits to the estate

 Lavish and extravagant expenses, such as first-class airfare, limousines, secretarial overtime, ex-
pensive in-house photocopying, and word processing

Other Fee Application Issues

The court does not guarantee payment of an accountant’s or financial adviser’s fees. Any payment must
come from the assets of the estate; if there are no assets in the estate, there will be no ability to pay for
services rendered.

Section 507 of the Bankruptcy Code sets forth the order in which expenses and claims are paid from the
funds of the estate and provides for the division of claims into nine general categories. Administrative
expenses, including the payment of allowed professional fees, enjoy top priority among unsecured
claims. Secured debts, however, have superior claims to priority and unsecured claims. Secured claims
must be paid before priority claims. For example, if a building is sold during a bankruptcy proceeding
for $100,000 and a secured creditor has a claim legally secured by the building in the same amount, no
funds would be available for payment of professionals. If, on the other hand, the building is sold for
$150,000, the secured creditor would be entitled to receive the first $100,000. The remainder would be
available for other creditors of the estate, the first of which are administrative claimants, including pro-
fessionals. In certain cases, there may be a "carve-out" negotiated at the start of the case as part of debt-
or-in-possession financing or use of prepetition lender’s cash collateral, establishing an amount of pro-
fessional fee claims that would be paid ahead of the secured lender in the event there are insufficient
proceeds to pay all such claims at the end of the case.

With limited exceptions (not applicable to accountants), compensation for unnecessary duplication of
services or services that were not reasonably likely to benefit the debtor’s estate or were not necessary to
the administration of the case will not be allowed.

Section 503(b)(3)(D) of the Bankruptcy Code provides that an administrative expense may be allowed
for "the actual, necessary expenses" incurred by "a creditor, an indenture trustee, equity security holder,
or a committee representing creditors or equity security holders other than a committee appointed under
Section 1102 of this title, in making a substantial contribution in a case under chapter 9 or 11 of this ti-
tle" even though the professional’s employment was not authorized by the court. Substantial contribu-
tion is not defined in the Bankruptcy Code and case law differs from circuit to circuit, but generally the
contribution must provide tangible, clearly demonstrable benefits to the estate; certain courts consider
whether the creditor’s actions were designed primarily to serve its own interests and would have been
undertaken in any event. Actions that have been found to be substantial contributions include successful-
ly seeking the appointment of the trustee, identifying sources of funds that become available to the es-
tate, or creditor’s actions that were instrumental in the plan process. Fee awards for substantial contribu-
tion are unusual, and an accountant should not rely on this provision of the Bankruptcy Code in render-
ing services.

Success Fees

Approved fee arrangements may provide for a success fee to be payable as part or all of the terms of an
accountant’s retention. The success fee can be a percentage of debt or equity raised as part of a plan of

© 2020 Association of International Certified Professional Accountants 35