Key Issues Regarding the Retention and Use
of Financial Experts in Bankruptcy Cases
Written By David P. Bart

Financial experts provide invaluable services to the court and to parties in interest in bankruptcy matters and in the defense or prosecution of litigation. As business experts, they can provide evidence and opinions that assist the court in reaching an understanding of key issues in the case. The range of topics that can be addressed by qualified financial accounting and business testimony is significant. A representative list extends beyond tax and accounting and includes corporate finance, cash flow management, forensic accounting, business valuation, loan compliance, business viability, management and operations, lost profits, damages and many other subjects. The types of professionals available to analyze the topics is also quite varied and includes accountants, business consultants, turnaround experts, fraud examiners, tax professionals and other specialized types of training. Determining the relevance and role of the financial professional required in each case is a question of the fundamental questions affecting each bankruptcy case and the overall litigation strategy.

Financial experts are governed by a wide range of rules defining their professional conduct. Accountants are governed by the AICPA and maintain a Code of Professional Conduct including Concepts of Professional Ethics, Rules of Conduct, Interpretations of Rules of Conduct and Ethics Rulings. Accountants draw careful distinctions between audit engagements (regarding the conformity of financial statements with GAAP), management consulting, litigation consulting and expert witness engagements. Accountants and financial professionals may also have designations or certifications from other organizations that subject them to additional rules of professional conduct. Examples include Certified Fraud Examiner, Certified Insolvency and Reorganization Accountant, Chartered Financial Analyst, Certified Turnaround Professional and others. Together, these rules identify distinctions, define guidelines and present limitations on the nature and scope of the services that can be provided.

Key issues need to be resolved and understood by both the financial expert and attorney prior to the engagement. Some of these issues include:

1. Will the financial professional be asked to testify as an expert witness? Is the relationship changing from litigation consultant to testifying expert?

2. Will the financial expert have fair and complete access to all pertinent facts from which to form an opinion? Will the opinion be independent and objective? Will there be any limitations on access to documents or people?

3. Does the financial professional have the appropriate background, qualifications and expertise to render the opinion?

4. Who is the client: the unsecured creditors’ committee, the committee attorney or an attorney's individual clients? What privileges are available to protect work product?

5. Are any conflicts of interest present? Are they material?

6. How will the expert's work or investigation impact other aspects of the case? Will discoveries in the investigation be revealed even if they jeopardize other cases? How will the discoveries impact the current work plan and case strategy?

7. What are the court's expectations and related rules of evidence regarding expert testimony, expert reports or opinions and can the financial professional meet these expectations?

A financial consultant to a committee should be focused on educating the committee members on facts, circumstances and analyses about available strategies and alternatives regarding the debtor’s business and the committee’s goals and objectives regarding the debtor. As an expert witness, the consultant’s role shifts to educating the court. In the fluctuating world of bankruptcy litigation, it is common for a business or financial consultant to shift roles and testify on matters involving business viability, cash flow forecasts and actual performance, tracing of prior transactions, financing alternatives, business valuation and other topics.

Beware of the expert who requires much guidance and finds it difficult to relate essential concepts to legal counsel. Financial experts should be capable of explaining their methods, underlying data, procedures, ethical issues, proper formats, interpretations and terminology. They should also be able to explain potential weaknesses, questions they may face, questions for the opposing expert and expected answers, as well as liability and damage theories. The basis for the expert’s conclusion must be clearly understood by both the attorney and expert before trial to prevent misinterpretations or surprises.

Above all, the expert must be honest and objective with his client and to the court. Careful analytical work persuasively presented in an articulate forthright manner can make the difference between winning and losing the case. The successful financial expert will understand and successfully manage these items as a key member of the litigation team. Together, the attorney and financial expert can successfully navigate through the many issues present in complex bankruptcy and litigation matters.

David Bart
Director, Bankruptcy and Litigation Services
National Corporate Recovery Practice
American Express Tax & Business Services
One South Wacker Drive
Chicago, Illinois 60606
312.634.4733 or david.p.bart@aexp.com

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