Section 328 And Its 'Two-Way Ratchet'

In the recent decision in the In re FAH Liquidating (f/k/a Fisker Automotive Holdings), No. 13-13087 (KG) (Bankr. D. Del. Jan. 21, 2015), case, the court addressed whether professionals retained by the Official Committee of Unsecured Creditors were entitled to receive a fee enhancement in addition to their normal hourly rate. Fisker is by now well-known among practitioners, as it garnered significant attention last year when the court limited the rights of an assignee of a secured creditor to credit bid pursuant to Section 363(k) of the Bankruptcy Code.

In Fisker, the committee's professionals sought in excess of 50 percent over and above their incurred professional fees as fee enhancements for their work in the case. While the court stated that it did not intend to "minimize its respect for the professionals' work," the court found that the requested fee enhancements, if allowed, would result in excessive compensation; as such, the court denied the request.

Prior to the issuance of the Fisker decision last year, the committee was formed and selected the professional firms of Brown Rudnick, Saul Ewing and Emerald Capital Advisors Corp. to serve as its professionals during the course of the case. As noted by the court, these professionals "did everything that the court would expect of them in a case of this size and complexity." In addition, the committee also requested that the court cap the assignee's right to credit bid under Section 363(k) of the Bankruptcy Code, a "controversial" request that the court ultimately granted. As a result of these actions, an open auction was held and the successful bidder made a cash purchase, rather than a credit bid purchase, thereby resulting in proceeds that benefited the debtors' estates and their creditors.

In addressing the fee enhancement request, the Fisker court first noted that any analysis of the fee enhancement request had to be made pursuant to Sections 327, 328 and 330(a) of the Bankruptcy Code. In particular, the court opined that Sections 327 and 328 of the Bankruptcy Code authorize debtors and debtors-in-possession to employ professionals on reasonable terms and conditions of employment, including paying a retainer and/or fees on either an hourly or contingent basis. The court further opined that pursuant to Section 328 of the Bankruptcy Code, "the court may allow compensation different from the compensation provided under such terms and conditions after the conclusion of such employment...