Summary: 11 U.S.C. § 101(31) has a list of third-parties with a statutorily defined relationship with the Debtor, which are called “statutory insiders”. This definition, however, use the word “includes”, which makes the list non-exclusive, with such being considered “non-statutory insiders.” (The District Court notes the oddity of the Bankruptcy Code statutorily providing for non-statutory insiders.)
In the present independent cases, the Debtors had applied to retain Douglas Gurkins as its chief restructuring officer (“CRO”) and also sought to retain Country Boys Auction & Realty to sell assets. The Bankruptcy Administrator objected on the grounds that Gurkins had previously been the president and principal owner of Country Boys, prior to his sale of that company to his son in 2005.
The District Court, in upholding the decision of the Bankruptcy Court, held that Country Boys must be “disinterested,” but is neither a statutory nor non-statutory insider. “Non-statutory insider status centers on the closeness of the relationship between the debtor and the employed professional, as well as on whether the challenged transaction was made at arm’s length.” This analysis is not limited to looking at whether the alleged insider exercises control over the debtor, but includes consideration of the relationship between the parties. In the present cases, the District Court held that Country Boys does not have an impermissibly close relationship with either Debtors. Further, while Gurkins was previously the principal of Country Boys, that relationship is now “largely historical”, despite Gurkins’ son being the current principal. Lastly, the employment of Country Boys was not improper, both because Gurkins received no money from Country Boys and because the auction commissions were let by local court rules and commission scale.
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