THE ETHICS OF REPRESENTING DEBTORS AND CREDITORS IN BANKRUPTCY

deeming this a more flexible approach to economic and efficient estate administration, especially

if full disclosure is made initially.¹⁴⁹ Ethical rules authorize counsel to represent an organization and also its constituents, such as its shareholders, when the representation of one will not adversely affect the other.¹⁵⁰ According to at least one court, representation of more than one

entity is "an ethical trap" where the only truly safe harbor is to represent only a single client in bankruptcy.¹⁵¹

6. Concerns that joint counsel for related debtors might not vigorously pursue claims of one against the other may also be addressed through hiring special counsel to evaluate and pursue interestate claims, or employing an examiner to evaluate them.¹⁵²

C. Attorney Direction by Management.

1. A number of bankruptcy courts have disqualified counsel for the DIP on the grounds that the attorneys are or may be more loyal to shareholder management or partners than to the debtor entity, because they also represent that management or those partners. This reason for disqualification has been given both when the insiders are debtors in their own bankruptcy cases,¹⁵³ and when the insiders have not filed.¹⁵⁴ Some courts address disqualification on this ground case by case, expressly deciding without a per se rule.¹⁵⁵
2. Although insider management may have its own agenda, counsel for an entity must nonetheless take her direction from that very management. Counsel should not be disqualified for doing what is ethically required; if management breaches fiduciary duties it should be ordered replaced, and counsel should be sanctioned only to the extent of any Rule 9011 violation.¹⁵⁶ When counsel furthers management violations of fiduciary duties and self dealing efforts, fee sanctions are likely, however.¹⁵⁷
3. Connections by other DIP professionals to management and insiders may likewise be disqualifying and adversely affect reorganization efforts.¹⁵⁸