Conflicting interests of the receiver/advocate and his law firm
A receiver must be able to take decisions freely and be able to weigh the interests involved in a bankruptcy against each other in an objective and unbiased manner. Before accepting an appointment as receiver, the respective person must make certain that he is free to act as such. If he had been the advocate (lawyer, attorney) of the bankrupt or of his shareholder or managing director before the bankruptcy order, despite his qualities he is presumed to be unable to act as such, at any rate any semblance of bias must be avoided. The same applies when he is on friendly terms with these persons.
How should the receiver act in a case where for instance a bankruptcy-restructuring plan has been prepared and only after his appointment does it appear that the party taking over the sound parts of the business is a client of his firm? If the receiver chooses to remain in office, which will often be possible, the party taking over will have to instruct a different law firm. The receiver is also free to withdraw so that his firm can continue to serve the party taking over. It is true that the Code of Conduct for Advocates is not, in any event not automatically, applicable to the receiver but the principles on which this Code is based are no less relevant to him. Even the semblance of conflicting interests should be avoided as much as possible and when this is not possible, the receiver ought to resign from his office or give a complete clarification of affairs and explain how he is dealing with them. If an unacceptable conflicting interest is involved or an unacceptable semblance of it, and this will soon be the case, giving a clarification of affairs will not usually be sufficient. Even when giving a clarification of affairs, often one will be unable to remove the impression that the receiver is not representing the interest as objectively and independently as he ought to represent it, for instance when the receiver intends to sell a business to a client of his law firm colleague.
When the receiver in his capacity as administrator (in Dutch: bewindvoerder) has prepared a bankruptcy-restructuring plan, there are obviously no objections to him being appointed as receiver. However, already as an administrator he would have to make sure that no conflicting interest arises with regard to him or his law firm.
What should an advocate do who has been asked to become the receiver, but who until that time has provided advisory services to a personnel board or a large or small creditor? Such advisory services obviously cannot be continued, but does this preclude the appointment? This will have to be assessed in each individual case. The starting point must be that the appointment should not prejudice the trust in the legal profession (and therefore also in receivers). For instance if an accountant is appointed as the receiver, the same applies accordingly. If the advocate (or accountant) has confidential information at his disposal which could be very useful to him as a receiver, but would otherwise not come into his possession, he has to abandon his appointment. Is a law firm colleague of the receiver allowed to assist a creditor in the bankruptcy (with a disputed claim)? This could result in two law firm colleagues litigating against each other, so that already for this reason this question must therefore be answered in the negative. In addition, the semblance of bias could easily be created so that for this reason too a negative answer is obvious. Also other relationships of the advocate or his law firm colleagues could mean that he has to refrain from an appointment as receiver.
Such conflicting interests cannot be prevented or circumvented by erecting so-called Chinese walls in the respective law firm. Such ‘paper walls’ have the intention that the one section or the one branch does not know which clients are being served elsewhere in the law firm, or at any rate does not know what services are being provided. I would think that a more legal approach is preferred in this respect and that a client should be considered to be a client of the law firm (the group practice) regardless of what internal procedures have been arranged with regard to information exchange in that law firm.
Attorney (Lawyer) / Partner
(28 December 2012)