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In re Farwell Ventures Inc., Case No. 23-11125-7 (05/17/2024) -- Judge Rachel M Blise

Case Summary:
The Court held that a Subchapter V debtor-in-possession was required to obtain court approval before employing and paying an accountant to prepare its tax returns during bankruptcy.  Section 327(a) specifically includes “accountant” in the list of professionals that a trustee or debtor-in-possession must seek court approval to employ, and the Seventh Circuit has held that employment under § 327(a) is a condition precedent to payment of professionals under § 330(a).  The debtor argued that employment under § 327(a) was not required because the accountant’s services were not central to the administration of the bankruptcy estate and because the debtor would need to prepare tax returns regardless of the pendency of the bankruptcy.  The court disagreed, holding that the debtor-in-possession was required to file tax returns and that the accountant assisted with that duty.  The Court also rejected the debtor’s arguments that the accountant’s fees could be paid under § 363(c) as an ordinary course business expense and that the permissive language in § 327(a) means that court approval is not mandatory.  Finally, the Court held that the statutes requiring prior authorization to pay professionals do not have a de minimus exception.  Though the accountant’s fee was only $500, the debtor was still required to employ and pay the account under §§ 327(a) and 330(a).  The Court ordered the accountant to disgorge all fees received after the petition date.

Statute/Rule References:
11 U.S.C. § 327
11 U.S.C. § 330(a)
11 U.S.C. § 363(c)

Key Terms:
Professional(s), accountant


Date: 
Friday, May 17, 2024