THE ETHICS OF REPRESENTING DEBTORS AND CREDITORS IN BANKRUPTCY

obligations.²⁶ The DIP's attorney must be pro-active and render unsolicited advice, as well as respond to client requests for advice, to inform the client of the need for preventative or corrective action in carrying out fiduciary duties.²⁷

1. Courts have sometimes described the DIP's fiduciary duties broadly but vaguely, as an obligation to act not in his or her own best interest, but rather in the best interest of the entire estate, including the creditors and owners of the estate.²⁸ Yet Congress did not require the DIP or its constituents to be disinterested, and competing creditors' interests are generally protected by their own counsel, the creditors' committee and the U.S. Trustee. The interests of DIP management (especially when they are liable for some DIP debts as guarantors or general partners) may differ from the interests of the DIP entity or some or all of its creditors. The DIP is to forego from self-dealing at the expense of creditors,²⁹ and obey Code restrictions and court orders.³⁰ But beyond that proscription, how is the DIP to act in the best interests of all?
2. There are two oft-discussed prongs to fiduciary duties: a duty of care, and a duty of loyalty.³¹ A fiduciary must make informed decisions and exercise the judgment that a person of ordinary intelligence and prudence would exercise, in fulfilling those duties.³²
3. One aspect of the duty of loyalty for fiduciaries with multiple beneficiaries is the duty to resolve conflicts among beneficiaries.³³ By way of example, in a corporate context outside of bankruptcy, such a duty arises for directors when some stockholders strongly desire current profits and high dividends, while others with equal fervor desire low dividends, high reinvestment of earnings, and maximum long-term growth.³⁴
4. In a Chapter 11 context, DIP duties to treat all constituents "fairly"³⁵ and resolve conflicts among them may be analyzed under three theories: (a) Pro-equity‹the DIP's duties are limited to the duty of care and to avoid improper personal conflicts and self-dealing, so the DIP can battle from the equity's perspective, because the creditors' interests are protected by the creditors' committee, individual creditors' counsel, and the U.S. Trustee; (b) Pro-debt‹given the absolute priority rule, the DIP must disregard shareholder interests until creditors are paid in full; (c) Stakeholder-mediator‹the DIP should be sure each constituency is informed about its