Bankruptcy Fiduciaries

Does social enterprise end with insolvency? Is bankruptcy all about the bottom line? The answer to these questions begins with understanding the estate in bankruptcy and the fiduciaries that control its fate. Yet the law of fiduciary duties in bankruptcy is undertheorized, conflicted, and muddled. After almost fifty years of confusion, this Article provides the first comprehensive examination of the nature and source of fiduciary duties in bankruptcy. Although the Supreme Court has intoned "maximize the value of the estate" as a shorthand, this Article argues that the trustee's duty of obedience in reorganization cases gives rise to a "duty to facilitate a plan" or, as I call it, a "duty to clear runway."It also concludes, based on 28 U.S.C. 959, that the trustee must observe state law fiduciary duties that would otherwise have governed the debtor outside of bankruptcy. Trustees of benefit corporations, for example, must not pursue money-maximization above all else but must balance pecuniary interests against the public benefit set forth in the debtor's articles, such as preserving employment, protecting the environment, or supporting the local economy. For their part, creditors and debtors alike have opportunities to advocate for public-minded goals in bankruptcy cases as part of official committees or, in a novel twist, a "benefit committee."And indeed, some creditors, like debtor-in-possession ("DIP") lenders, may step into a fiduciary relationship with the bankruptcy estate if they wield extraordinary control over the estate's decision-making. The timing is right for a rethinking: As the social enterprise ecosystem finds itself caught up in bankruptcy proceedings, creditors and debtors alike may wish to press for their vision of value. This vision for bankruptcy law is both capacious and controversial: It would allow for a wider range of values to be pursued during the plan negotiation process and could reshape bankruptcy practice for social enterprises.