April
1, 1999
The purpose of this memorandum is to amend the Memorandum
of Understanding (MOU) between the Administrative Office of
the United States Courts (AO) and the Executive Office for
United States Trustees (EOUST) regarding the responsibilities
and procedures for the closing of cases and the monitoring
of chapter 11 cases after confirmation. This amended MOU seeks
to reflect changes in the rules governing bankruptcy procedure
since the original MOU and further allocates responsibilities
of the case trustee, United States Trustee, and clerk in the
case closing process.
Obtaining and maintaining an adequate level of resources
to fulfill the responsibilities of the MOU remains a challenge.
The standards set forth are a foundation of proper administration
of bankruptcy cases. All parties continue to be committed
to this goal and the need to examine continually policies
and procedures so that they can be improved. Accordingly,
this MOU may be modified from time to time as necessary by
written agreement between the parties.
Comments, questions, or problems regarding this memorandum
and its implementation should be directed to the Working Group
established by the AO and the EOUST.
I. Background
Since enactment of the nationwide United States trustee
program, Pub. L. 99-554 (1986), the AO and the EOUST meet
periodically to discuss matters of mutual concern. Representatives
of the bankruptcy courts and United States Trustees participate
in those meetings. The purpose of the meetings is to delineate
responsibilities and examine and improve procedures. The following
factors have been established:
A. The administration of a bankruptcy estate is entrusted
to a private person, whether a trustee under chapters 7, 11,
12 and 13 of the Bankruptcy Code, or the debtor itself under
chapter 11. As the degree of creditor participation in a chapter
7 liquidation case is often minimal, review by the United
States Trustee of the manner a particular estate is being
administered is important. Additionally, ensuring that chapter
11 estates have been fully administered, so that the court
may close the case, is an important element of effective case
administration.
B. Pursuant to 28 U.S.C. section 586, the United States
Trustee has the responsibility to appoint private trustees,
oversee their performance, and generally supervise the administration
of estates.
C. Pursuant to 11 U.S.C. section 350, and 28 U.S.C.
section 151 et seq., the court's responsibilities
include adjudicating disputes arising in a case and approving
certain actions of debtors and trustees. Under 11 U.S.C. section
350, the court has the responsibility to close a case and
discharge the trustee.
D. Pursuant to 28 U.S.C. section 156(b) and FRBP 5001,
and 5003, the clerk of the court (clerk) is the recipient
and repository of all court records. The clerk also assists
the court in carrying out its duties.
E. The court, the clerk, and the United States Trustee
each have responsibility within the scope of their offices,
to ensure that cases move expeditiously, efficiently and properly
through the system.
F. In March 1988 the Judicial Conference of the United
States directed that clerks' offices not perform or duplicate
the case closing review function performed by the United States
Trustee. See Resolution of the Judicial Conference,
Conf. Rpt. At pp 9-10 (March 1988).
G. If a case trustee under chapter 7, chapter 12 or
chapter 13 has filed a Final Report and Final Account and
has certified that the estate has been fully administered,
and no objection has been filed by the United States Trustee
or a party in interest within 30 days, FRBP 5009 provides
that there shall be a presumption that the estate has been
fully administered.
H. In chapter 7 asset cases, prior to the filing of
the Final Account and Certification that the Estate has been
Fully Administered, the case trustee is to transmit to the
United States Trustee a Final Report wherein the trustee details
the administration of the estate, including the proposed dividend
distribution. Effective August 1, 1993, FRBP 3009 was amended
to delete the requirement that the court approve the amounts
and times of distributions in recognition of the role of the
United States Trustee in supervising trustees and estates.
I. Pursuant to 11 U.S.C. section 330, the court must
approve the compensation and expenses of the trustee and that
of any professional paid from estate funds. A case closing
process encompassing both the approval of fees and expenses
by the court, as well as review of the Final Report by the
United States Trustee is desirable.
II. Responsibilities of the Chapter 7 Case
Trustee
A. Submission of the Final Report The case
trustee shall submit to the United States Trustee a Final
Report. The Final Report is the pre-distribution summary of
all actions taken by the chapter 7 case trustee to administer
the case and a summary of the creditor and administrative
claims outstanding at the time of submission to the United
States Trustee. It is a signed statement by the trustee, submitted
under penalty of perjury, certifying that all assets have
been liquidated or properly accounted for and that funds of
the estate are available for distribution. Prior to the submission
of the Final Report, the trustee shall have ensured that the
claims review process is completed, including, if necessary,
the completed adjudication by the court of any disputed claim.
The Final Report shall consist of a) the Individual
Estate Property Record and Report (United States Trustee
Form 1); b) the Cash Receipt and Disbursement Record
(United States Trustee Form 2); and c) the proposed
dividend distribution report. A proposed Notice of
the Final Report and the Application for Compensation and
Expenses, in a format similar to that set forth on either
Attachment A or Attachment
B, shall also be submitted.
With the Final Report, the trustee shall submit to the
United States Trustee a) the application or previously
entered order of court for trustee compensation and reimbursement
of expenses; b) the applications or orders of court
for compensation and expenses for all professionals retained
by the trustee; and c) appropriate financial documentation
relating to the estate to support the Final Report. The
applications submitted are to be drawn in accordance with
the Guidelines promulgated by the Executive Office for the
United States Trustees.
B. Distribution of Estate Dividends If the
court awards compensation and expenses as provided in the
Notice of the Final Report and the Application for Compensation
and Expenses and the United States Trustee has approved the
Final Report, upon entry of the compensation and expense order,
the case trustee shall commence payment of dividends in accordance
with the reviewed dividend distribution report. If,
however, the court modifies the fees and expenses, the trustee
shall not make distribution of dividends until the revised
dividend distribution report has been reviewed by the United
States Trustee. The payment of the final compensation
and expenses shall not be made prior to the payment of the
final dividends to creditors and in no event shall the final
dividend to creditors be paid later than 30 days after the
entry of the final order on compensation and expenses.
C. Submission of the Final Account, Certification
that the Estate has been Fully Administered, and Applications
to be Discharged Within 125 days after the entry of
the order of court allowing compensation and expenses, the
case trustee shall submit to the United States Trustee a Final
Account, Certification that the Estate has been Fully Administered,
and Application for Discharge pursuant to FRBP 5009. The
Final Account is the trustee's post distribution statement
and includes a certification, submitted under penalty of perjury,
that all funds have been disbursed consistent with the dividend
distribution report and that all checks have been negotiated,
or any remaining estate monies have been paid into court,
and that the estate has been fully administered. The
case trustee shall submit to the United States Trustee all
necessary financial documents to support the Final Account.
III. Responsibilities of Standing Trustee
Within 150 days of the final distribution to creditors
in a chapter 12 or 13 case, the standing trustee shall file
with the court, pursuant to FRBP 5009, the Final Account,
the Certification that the Estate has been Fully Administered,
and an Application for Discharge.
IV. Duties of the United States Trustee in
Case Closing The United States Trustee shall
undertake the following efforts with regard to case closings
in chapters 7, 12 and 13 cases.
A. Review of chapter 7 asset reports The United
States Trustee shall review within 60 days of receipt all
Final Reports in chapter 7 asset cases utilizing the following
procedures:
The United States Trustee shall conduct a thorough review
of all asset case reports. This process involves the
determination that all assets in the estate were properly
administered (i.e., examination of exemptions, abandonments,
sales, or other liquidations). All reports shall be
reviewed to ensure the inclusion of court orders approving
employment, payment of compensation, sales (if applicable)
and other actions taken by the trustee in the case. All
compensation and expense reimbursement requests filed on
behalf of the trustee or other professionals or agents will
be reviewed for compliance with the Bankruptcy Code, Rules
and the Fee Guidelines. All calculations in the trustee's
Final Report, including the calculation of the trustee's
fee and proposed dividend to creditors, will be reviewed
for accuracy. Based upon a review of case documents
received by the United States Trustee, a determination will
be made that the trustee has reviewed and properly dealt
with all claims. The United States Trustee will rely
on the trustee's certification that all claims have been
reviewed. If deemed necessary by the United States
Trustee, the trustee's certification will be verified by
further review of the documents on file with the clerk.
Deficiencies in the trustee's administration or other problems
or mistakes will be brought to the trustee's attention for
corrective action.
The United States Trustee shall file the Final Report
or an amended Final Report, and Application for Compensation
and Expenses with the clerk, noting that the report has
been reviewed, at or before the end of the 60 days, if all
deficiencies are resolved. If the case trustee does
not agree with the United States Trustee's position that
the report is deficient, the United States Trustee shall
file the Final Report with the clerk within 60 days of receipt,
indicating the objection of the United States Trustee to
the Final Report. The United States Trustee shall
also file any objection to the Application for Compensation
and Expenses and may combine the objection to the Final
Report and to the Application in one document.
If the court orders compensation and expenses in an amount
different from the trustee's application, the United States
Trustee shall review the trustee's revised dividend distribution
report within 10 days of receipt and return it to the trustee
noting that is has been reviewed.
With regard to the Final Account, Certification that the
Estate has been Fully Administered and Application for Discharge,
FRBP 5009 places responsibility on the case trustee to certify
that the estate has been properly administered, including
documenting the disposition of assets, expenditures, review
of claims and final distribution. Although it shall be the
United States Trustee's responsibility to see that adequate
procedures are in place to ensure an effective and efficient
case closing procedure, the United States Trustee is not
a guarantor or insurer of the work performed by the case
trustee. Rather, the United States Trustee shall review
the trustee's final account for accuracy, and upon completion
of the review and the correction of any deficiencies, the
United States trustee will file within 30 days of receipt,
the Final Account, Certification that the Estate has been
Fully Administered, and Application for Discharge of the
trustee with the court, and shall provide the following
statement: "The United States Trustee has reviewed
the Final Account, Certification that the Estate has been
Fully Administered and Application for Discharge of the
trustee in accordance with the standards set forth in the
MOU dated April 1, 1999 and has no objection to the trustee's
certification that the estate has been fully administered
and is ready to close."
B. Review of chapter 7 no asset cases The case
trustee shall submit a No Distribution Report (NDR) to the
United States Trustee within 60 days of the meeting required
by 11 U.S.C. ยง 341(a) or file the NDR with the Court and serve
a copy on the United States Trustee within the same time period.
The NDR constitutes the Final Report and Final Account
in an estate where the case trustee has determined that there
are no assets to administer. If the original NDR has
been submitted to the United States Trustee then the United
States Trustee shall file the NDR with the court within five
days of receipt.
Because of the nature and volume of no asset cases, a
detailed review of each case is not feasible. The
United States Trustee's review will be based on an evaluation
of a random sample of NDRs submitted by each trustee. Within
30 days of the filing of the NDR, the United States Trustee
will, in those cases selected, review the schedules to determine
that all assets listed were properly exempted or of no value
to the estate. If it appears that assets were available
for liquidation, the record of the section 341 meeting will
be reviewed to see if it explains the failure to liquidate
assets. If the information is not adequate, the trustee
will be required to provide an explanation. If the
deficiencies warrant, the United States Trustee will file
an objection to the NDR or move to reopen the case so an
objection can be filed. Errors, omissions or a clear
failure to perform will result in a more thorough review
of that trustee's work and, if deemed appropriate, action
will be taken by the United States Trustee. In addition
to this process, a verification letter will be sent to the
debtor in sampled cases as a further substantiation that
assets were not turned over to the trustee.
C. Review of chapter 12 and 13 cases With regard
to chapter 12 and 13 case closings, the United States Trustee's
review will be based on the supervision of the standing trustee
through reporting requirements, budget approvals and on site
visits as well as an annual audit by an independent certified
public accounting (CPA) firm. If the standing chapter
12 and 13 trustee caseload or cash flow falls below the threshold
amount for the hiring of an independent CPA, an annual review
will be conducted by the United States Trustee's office or
other office of the Department of Justice. During an
audit, selected cases will be reviewed in depth for the accuracy
of receipts and disbursements. Internal controls and procedures
will also be scrutinized. The annual audit will be made
available to the court if requested.
In order to comply with the provisions of FRBP 5009, in
the Final Report and Final Account, the chapter 12 or 13
standing trustee shall certify that the estate has been
fully administered. If warranted, the United States
Trustee will object to the standing trustee's Final Report
and Final Account.
If the caseload is not sufficient for the appointment
of a standing chapter 12 or 13 trustee, chapter 12 and 13
cases will be processed on a case by case basis in the manner
established for chapter 7 asset cases.
V. Court and Clerk The court
and clerk shall undertake the following efforts.
A. Chapter 7 Asset Cases
1. After review by the United States Trustee, all
Final Reports and Final Accounts, Certifications that the
Estate has been Fully Administered, and Applications for
Discharge shall be filed with the clerk. The clerk
shall have the responsibility to keep a docket in each case
and ensure that all docket entries are accurate and complete.
The clerk's office will bring to the attention of
the United States Trustee any discrepancies or deficiencies
discovered in the course of its processing so that such
can be resolved. Staff of the clerk's office, however, should
not be used to perform or duplicate the United States Trustee's
Responsibilities.
2. Upon filing of the Final Report and Application
for Compensation and Expenses, a notice in a form similar
to that set forth on Attachment
A or Attachment B, shall
be given to creditors pursuant to FRBP 2002(f)(8), and 2002
(a)(7). The notice shall be sent by the case trustee
or such other person as the court directs as provided under
FRBP 2002(a), or the clerk. The notice is to state
that the Final Report has been filed, the amount of money
in the estate, the amount of compensation and expenses requested
by the trustee and the professionals for the trustee (or
the amount previously approved by the court), the names
and the amount of the approved claim for each entity in
a class that will be part of the distribution, the estimated
amount of the dividend or the pro rata percent, the date
of any hearing or the procedure for filing an objection
to the fees or the proposed distribution. If the clerk
provides the notice, the case trustee shall provide its
content in the format set forth on Attachment
A or Attachment B.
3. The clerk shall submit to the court applications
for compensation and reimbursement of expenses.
4. Upon filing of a Final Account, Certification
that the Estate has been Fully Administered and Application
for Discharge of trustee, and if within 30 days of that
filing no objection has been filed by the United States
Trustee or by a party in interest, the court shall enter
an Order closing the case pursuant to 11 U.S.C. section
350 and FRBP 5009.
B. Chapter 7 No Asset Cases
1. Upon filing of the NDR in a no asset case, and
the expiration of the time limits for filing objections
to the case trustee's report pursuant to FRBP 5009, and
for filing objections to the debtor's discharge pursuant
to FRBP 4004(a), the clerk shall authorize payment to the
trustee of the fee established by 11 U.S.C. section 330(b).
2. After the above events occur the court, pursuant
to 11 U.S.C. section 350 and FRBP 5009, shall enter an order
to discharge the trustee and close the case after the expiration
of the 30 day period set forth in FRBP 5009.
C. Chapter 12 and 13 Cases
1. After the standing trustee has filed the Final
Report and Final Account and Certification that an Estate
has been Fully Administered, the court shall close the case,
pursuant to 11 U.S.C. section 350 and FRBP 5009.
2. When chapter 12 and 13 estates are individually
administered, cases shall be processed and closed in the
manner provided for chapter 7 asset cases.
VI. Post Confirmation Chapter 11 Cases
A. Background
1. The AO and EOUST agree that the issue of ensuring
that a confirmed plan is implemented to the degree necessary
to allow the court to close the case continues to be a challenge
to efficient and effective case administration. The
following delineates the parameters of responsibility:
a. Court and Clerk As part of the confirmation
of a plan, courts have generally provided that, by a specified
date, the debtor shall certify to the court that disbursements
pursuant to the plan have been undertaken, and that the
plan has been substantially consummated, so that an Application
for Final Decree can be filed pursuant to FRBP 3022. The
clerk will periodically provide the United States Trustee
with a list of those cases where an Application for Final
Decree has not been timely filed.
b. United States Trustee Because of the
United States Trustee's responsibility to monitor the
case, and the debtor-in-possession or trustee, the United
States Trustee shall review any application for a Final
Decree, and the report(s) required by the order of confirmation.
It is within the discretion of the United States
Trustee to object to an Application for Final Decree or
to the contents of any reports required by the order of
confirmation. If no objection has been filed within
30 days of the filing of the application or report(s),
it is presumed that the estate has been fully and properly
administered. Where no timely Application for Final
Decree has been filed, the United States Trustee shall
undertake efforts as the United States Trustee deems appropriate
to secure the filing of an Application for Final Decree,
or seek an order from the court.
_____/S/_______________ ______/S/_____________
Administrative Office of Executive
Office for
the United States Courts United
States Trustees,
Department
of Justice
April 1, 1999 February
10, 1999 |