A Two For One Special: An Analysis Of A Bankruptcy Trustee’s Control Of The Privilege Of A Debtor And Its Special Committees
It is well-established that a corporation has an attorney-client privilege and may assert it to keep privileged communications between the corporation’s agents and its attorneys confidential. But what happens if the corporation files for bankruptcy? The answer depends in part on the type of bankruptcy filed and whether a bankruptcy trustee takes over the management of the debtor’s affairs. When a bankruptcy trustee is appointed under either chapter 7 or chapter 11, it is now well-established that a corporation’s privilege transfers to the bankruptcy trustee when the company files for bankruptcy. More recent decisions have taken the trustee’s assumption of control over privileged materials a step further and found that the privilege of a special committee[i] of the debtor’s board also passes to a bankruptcy trustee upon the commencement of the bankruptcy. Those decisions, however, have generally focused on bankruptcy policy considerations rather than the underlying privilege fundamentals. This article supplements that analysis before concluding that these decisions are correct in most circumstances, but should not be followed in situations where adversity between the trustee (as the representative of the corporation) and the special committee remains or where a third party also has a right to assert the privilege at issue.
[i] The use of the term “special committee” throughout this article is a reference to any subset of a corporation’s board of directors, including an audit committee, a special investigation committee, or any committee comprised of a subset of the debtor’s board of directors.
For the full article or for more information on the Norton Annual Survey of Bankruptcy Law, 2021 Edition, visit Thomson Reuters.