Examiner

An Examiner is an independent, neutral professional appointed by a bankruptcy court, typically in a Chapter 11 reorganization case. Think of them as a special investigator or a corporate detective brought in to get to the bottom of things when a company goes bust. Their primary mission isn't to run the company—that's the job of a trustee or the existing management (known as the debtor-in-possession). Instead, the examiner's role is to conduct a targeted investigation into the debtor's financial affairs. This often happens when there are serious allegations of fraud, dishonesty, incompetence, or significant mismanagement by the company's leadership before or during the bankruptcy. The examiner digs through records, interviews key players, and produces a detailed, objective report for the court, creditors, and all other interested parties. This report can be a game-changer, influencing whether the company gets to reorganize or is forced into liquidation.

An examiner acts as the eyes and ears of the court, tasked with uncovering the unvarnished truth about a company's troubles. Their duties are precisely defined by the court but generally fall into a few key areas.

• Investigation: The examiner is given a specific mandate to investigate. This could be a broad look at the company's operations or a deep dive into specific, questionable transactions. For example, they might be asked to probe why the company paid huge bonuses to executives just before filing for bankruptcy or investigate shady deals with related parties. They have the power to subpoena documents and compel testimony, giving them powerful tools to uncover facts that management might prefer to keep hidden.
• Reporting: The culmination of the investigation is the examiner's report. This isn't just a dry summary; it's often a detailed narrative that lays out the facts, provides analysis, and draws conclusions about any wrongdoing. This report becomes part of the public record and is a critical source of information for everyone involved. It can identify potential legal claims the company could pursue (like suing former directors) and provides a factual basis for creditors to decide whether to support or oppose the company's proposed reorganization plan.
• Neutrality: Crucially, an examiner is an impartial officer of the court. They don't represent the debtor, a specific creditor, or the shareholders. Their only loyalty is to their investigative mandate and the facts. This neutrality is what gives their report so much weight and credibility.

A judge doesn't just appoint an examiner on a whim. The U.S. Bankruptcy Code sets out specific circumstances for their appointment in Chapter 11 cases.

• Mandatory Appointment: The court must appoint an examiner if a party (like a creditor or the U.S. Trustee) requests one, and the company’s fixed, unsecured debts exceed $5 million. This is a relatively low threshold for large public companies, making an examiner a common feature in major bankruptcies if someone asks for one.
• Discretionary Appointment: Even if the debt threshold isn't met, the court may still appoint an examiner if it is deemed to be in the best interests of the creditors and the estate. This usually happens when there are credible allegations of serious misconduct that need an independent look. Think of situations involving potential accounting fraud, self-dealing by management, or a complete breakdown of trust between the company and its creditors. Famous cases like Lehman Brothers and Enron both had highly influential examiner reports that shed light on massive corporate failures.

For the average investor, a company filing for bankruptcy is usually a signal to run for the hills. But for a savvy value investor, particularly one interested in distressed debt investing, a bankruptcy can present a unique opportunity. This is where the examiner becomes your best friend.

• An Information Goldmine: The examiner’s report is often the single best source of unbiased, in-depth information about a troubled company. While company press releases and management statements are often full of spin, an examiner’s report cuts through the noise. It provides a detailed, factual account of what went wrong, who was responsible, and the true state of the company's financial health. It’s like getting a detailed forensic accounting report for free.
• Uncovering Hidden Value (or Red Flags): A value investor is always trying to determine a company's true intrinsic value. An examiner’s report can be instrumental in this process. It might uncover hidden or undervalued assets, identify frivolous claims that can be dismissed, or reveal strong legal claims against third parties that could bring cash back into the company. Conversely, it can expose a black hole of fraud and mismanagement, waving a giant red flag that tells you to stay away. The 2,200-page report on Lehman Brothers, for instance, gave the world a masterclass on the firm's accounting shenanigans, including its infamous Repo 105 transactions, providing invaluable insight for anyone trying to value its remaining assets.

By studying an examiner's report, an investor can make a much more informed decision about whether a bankrupt company's debt or equity represents a bargain or a value trap.