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UPDATE – Insider’s Scoop: Recently Appointed Equity Committee’s Professional Fees Preliminarily Capped by Bankruptcy Court

In re Horsehead Corp., No. 16-10287 (Bankr. D. Del. June 20, 2016) (CSS) [Transcript Ruling]

In the Horsehead family of cases, Judge Sontchi ruled, in the context of considering the equity committee professionals’ retention applications, that a preliminary reasonable global cap of $1.75 million on the equity committee’s professional fees was warranted.  See generally Hr’g Tr. 24:17-29:17.  Our previous blog post analyzing the appointment of the equity committee in these cases can be found here.  The Court had stated at a telephonic discovery conference held just a few days prior that it had “serious concerns that the equity committee is overstepping its charge.”

In making his ruling, Judge Sontchi began by observing that equity committees are the exception, not the rule.  The Court also noted that imposing fee caps can have negative effects, and thus, the Court is typically reluctant to impose them.  Here, however, Judge Sontchi ruled that “this is the rare case where it would be appropriate to…impose a reasonable preliminary cap on equity committee fees and expenses for professionals.”  Hr’g Tr. 26:15-18.  In so doing, the Court weighed the basis for its decision to appoint an equity committee in these cases—to investigate the change in the Debtors’ valuation over a fairly brief period of time—against the increased administrative expenses.  Judge Sontchi did “what judges do when they’re faced with [a difficult] decision and split the baby”—imposing a fee cap of $1.75 million.  Hr’g Tr. 27:12-14.  Importantly, the Court reserved the right to expand the cap if it was presented with evidence that other parties in the case are intentionally causing the equity committee to exceed the cap.