When a corporation seeks bankruptcy protection, there are privacy concerns. The courts have recognized that a company has the benefit of the attorney-client privilege with its corporate attorney. This means that your company’s communications with its lawyer are protected and will remain confidential.
When a corporation files for bankruptcy protection, however, whether its communications are privileged may depend on what type of bankruptcy is filed. If the company seeks Chapter 7 liquidation, a trustee is appointed to administer the case. Thus, the trustee has the authority to assert and/or waive the debtor-corporation’s attorney-client privilege.
If the entity files a Chapter 11 reorganization case, its management team typically continues to operate the “debtor in possession” entity. As the debtor in possession and controlling party, the corporation continues to have the authority to assert of waive the attorney-client privilege. However, in some cases the court may appoint a Chapter 11 trustee. In that instance, the Chapter 11 trustee may assert or waive the privilege.
The officers and directors of the company must keep in mind that the privilege belongs to the corporate entity. In other words, if control of the company shifts to another party, such as a bankruptcy trustee or new management team, they will have access to the corporation’s privileged information.
A corporation that is considering seeking bankruptcy protection should consult with its legal counsel regarding the attorney-client privilege. It is important to understand what communications are protected, especially in a case where a trustee may be appointed. A seasoned bankruptcy lawyer can make sure you understand what can happen when a trustee assume control of the corporation and has access to confidential information.
If you are part of the management team for a corporation that may require bankruptcy protection and you have concerns regarding the attorney-client privilege, contact us for a free consultation.