The Small Business Reorganization Act of 2019 created subchapter V[1] of chapter 11 of the Bankruptcy Code which became effective on February 19, 2020. Courts and practitioners are now actively interpreting and applying the new subchapter’s provisions. One issue of application that is sure to arise during the discovery phase of litigation is whether the debtor or subchapter V trustee, as applicable, may successfully assert an evidentiary privilege to withhold information received by the trustee from the debtor and/or its agents or professionals.
During a subchapter V case, the debtor may share information with the subchapter V trustee that is privileged information. Privileged information is usually protected from disclosure under the attorney-client or work product privilege. By disclosing the information to the subchapter V trustee, the debtor, absent application of the common interest doctrine, would lose the protective effect of the privilege. The information would then be subject to disclosure by the debtor and trustee in litigation commenced against the debtor and/or the estate. The common interest doctrine which “provides an exception to the general rule that an evidentiary privilege is waived when the party asserting the privilege shares the communication with a third party,” [2] may provide the debtor and trustee with authority to withhold the privileged information disclosed to the trustee and/or his/her professionals.
This article discusses (i) the appointment, role and scope of authority of the subchapter V trustee; (ii) the attorney-client and work-product privileges and common interest doctrine, in general; and (iii) relationships analogous and/or akin to the subchapter V trustee and subchapter V debtor relationship in which the court, through application of the common interest doctrine, protected from disclosure in litigation certain information that the debtor had disclosed to or shared with a third party.
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[1] See 11 U.S.C. §§ 1181-1195
[2] See, e.g., In re Infinity Bus. Grp, Inc., 530 B.R. 316, 322 (Bankr. D.S.C. 2015)
Camisha is the Founder and Managing Member of Simmons Legal. She is dedicated to assisting parties in protecting their interests in corporate restructuring, creditors’ rights, real estate transactions, other business transactions, and litigation matters.
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