Refco U.S. Trustee asks court to reconsider Chapter 11 trustee denial

By Caroline Salls

Pittsburgh, Jan. 20 - Refco, Inc.'s U.S. Trustee asked the U.S. Bankruptcy Court for the Southern District of New York to reconsider its order denying the Trustee's motion to appoint a Chapter 11 trustee for the company's case to investigate claims of pre-bankruptcy misconduct by management and to determine if the estate can recover damages related to the alleged misconduct.

In her motion to reconsider, U.S. Trustee Deirdre A. Martini said the court erred by considering what candidates the trustee might appoint.

In addition, Martini said the court erred in finding that the hiring of Harrison Goldin as chief executive officer, coupled with a last-minute resignation by the board of directors after appointing a single successor director, replaced the need for a Chapter 11 trustee.

The trustee also said that the denial placed an improper limitation on the board of directors to manage the affairs of the company and that the court cannot legally limit the authority of a Chapter 11 trustee to exercise the powers and perform the duties of a trustee under the bankruptcy code.

The trustee motion was denied with the condition that the current members of the board of directors are removed and replaced with at least one independent director, which has happened.

The court amended the denial on Jan. 12 to exclude Refco Capital Markets until after the court rules on whether to convert its case to Chapter 7 bankruptcy for stockbroker liquidation.

Refco, a New York-based commodities brokerage company, filed for bankruptcy on Oct. 17. Its Chapter 11 case number is 05-60006.

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