In a February 14, 2012 article, “Federal Investigators Gain Access to Thousands of Internal MF Global Documents” the New York Times reports that the trustee for bankrupt MF Global has agreed to partially waive the corporation’s attorney client privilege so as to turn over “thousands of internal e-mails and documents to federal investigators, ending a dispute over the privacy of decisions made in the days before the firm collapsed”
This reminds us that many years ago, the United States Supreme Court ruled that a corporation’s bankruptcy trustee controls the attorney client privilege and can waive it. This same rationale has been extended to corporations, Limited Liability Companies, and even partnerships. Under limited circumstances, it has been applied to individuals. As a bankruptcy trustee, I used this power more than once to pry open important information, sometimes yielding a treasure trove of information.
Normally, what a person, or the management of a business tells their attorney in private is privileged and protected against disclosure. However, by putting itself into bankruptcy, a business entity enters a “fishbowl”, and where a trustee is appointed (routine in Chapter 7 bankruptcies but far less common in Chapter 11) the Trustee becomes the new management, and gains control of the attorney client privilege. Confidential discussions between corporate officers or business partners and their attorney can potentially no longer be private if a trustee so chooses.
That is why we regularly recommend that the individual shareholders, partners or members of a business in trouble retain personal counsel. When we act as counsel for the business, we caution our clients about the potential for otherwise privileged discussions to lose that status.
Steering a business out of financial trouble is rarely simple. Litigation in bankruptcy court is always possible. Disputes with creditors are likely. Experience is essential. For more information about these and related subjects, please visit our websites at http://www.southjerseybankruptcylaw.com or http://www.nv-njlaw.com