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BankruptcyThe Bankruptcy StrategistFeatures

Did 'FTX' Start Trend of Using the Threat of an Examiner Costs and Complications As a Source of Leverage?

By William E. Curtin and Chelsea McManus
March 01, 2025

In January 2024, the U.S. Court of Appeals for the Third Circuit found in FTX Trading Ltd., 91 F.4th 148 (3d Cir. 2024) that, if certain statutory requirements are met, appointment of an examiner under section 1104(c) of the Bankruptcy Code is mandatory upon the motion of a party in interest.

This Circuit-level confirmation that the “shall” in the examiner statute does in fact actually mean shall led to concern among bankruptcy practitioners that the now-confirmed mandatory nature of this provision would lead to the weaponization of examiner motions as a tool for delaying cases or exacting unrelated concessions.
This was previously less of a concern as, notwithstanding the statutory language, bankruptcy courts — including those in Delaware and New York — considered examiner appointments discretionary based on the subsequent “as is appropriate” in the text of section 1104(c).

A year later, there are some indications that parties may in fact be using the threat of an examiner and its associated costs and complications as a source of leverage, although the jury is still out on the full impact of the FTX decision on examiner motion practice. Of course, this practice contradicts the purpose of an examiner as a neutral third party. Bankruptcy practitioners will watch closely to see if this trend continues.

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