The concept of a debtor in possession – that incumbent directors and managers can be made into statutory fiduciaries to reorganize a business that failed under their leadership – is an inspired idea. It is a uniquely American expression of trust and confidence, and it is consistent with the principles of fresh start and renewal at the heart of Chapter 11. Notwithstanding the concept’s brilliance, we take issue with the automatic and universal application of the default presumption that all Chapter 11 debtors should remain in possession.

Despite Congress’s intention that business reorganization cases would be used “to restructure a business’s finances so that it may continue to operate, provide its employees with jobs, pay its creditors, and produce a return for its stockholders,” [1] Chapter 11 has become something quite different. Now, Chapter 11 is oftentimes a mechanism to effectuate an orderly liquidation or to correct process failures. [2] That is not “wrong” or even troubling to us; instead, we are concerned that in some such cases, allowing the debtor and its corporate management to remain in possession could inhibit the reorganization process.

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