An important issue in chapter 11 cases is whether a “professional person” qualifies as a bankruptcy “professional” within section 327(a) of the Bankruptcy Code. Section 327(a) requires that a trustee or debtor-in-possession must seek court approval for the employment of attorneys, accountants, appraisers, auctioneers, or other “professional persons” assisting the debtor with its bankruptcy case. Further, section 327(a) specifies, among other things, that a trustee or debtor-in-possession may only employ professionals that are “disinterested persons” to assist in the administration of the debtor’s bankruptcy case. The failure to obtain court approval under section 327(a) “may result in the denial of compensation for services rendered prior to the date court approval is obtained.”
However, in a chapter 11 case, under section 1108 of the Bankruptcy Code, a debtor-in-possession may employ a professional person in the ordinary course of business, if that person is exclusively assisting the debtor with its non-bankruptcy activities in connection with operating the debtor’s post-petition business, even if that person is not disinterested. Thus, this issue is significant because it determines whether a professional can be retained in the ordinary course of business, without having to comply with section 327(a).
Courts have continually struggled with how to interpret the term “professional person,” as it is used in section 327(a), because it is not defined by the Bankruptcy Code. In determining this issue, courts have applied three distinct tests: (1) a qualitative test, (2) a quantitative test, and (3) a six-factor test. These tests focus on different elements of the professional person’s relationship to the debtor and the duties of the professional. This Article will be separated into four parts. Part I will discuss the quantitative test. Part II will discuss the qualitative test. Part III will discuss the six-factor test. Finally, Part IV will conclude by addressing the practical implications of permitting a debtor-in-possession to retain a professional in the ordinary course of business without having to comply with section 327(a).