7. What is the authority of the trustee (debtor in possession) in bankruptcy?
As previously discussed, the trustee in bankruptcy plays an important role in the administration of a bankruptcy case. The general authority of the trustee includes:
• affirming or disaffirm contracts with the debtor which are yet to be performed;
• setting aside fraudulent conveyances from the bankruptcy estate;
• voiding certain preferential transfers of property by the debtor to creditors;
• suing those who owe the debtor an obligation that is not paid; and
• setting aside statutory liens on property taking effect upon the filing of bankruptcy.
Remember, the trustee in bankruptcy plays a primary role in all individual bankruptcies and business liquidation bankruptcies. Trustees are only appointed in business reorganizations in limited circumstances. It is the responsibility of the DIP to administer the bankruptcy estate. The authority of the DIP is discussed separately.
• Discussion: What do you think about the authority of the bankruptcy trustee? Why do you think the trustee’s authority is so broad?
• Practice Question: ABC Corp is in the process of a liquidation bankruptcy. A bankruptcy trustee has been appointed to control ABC’s bankruptcy estate. What are the powers of the trustee in settling the debts and obligations of the estate?