By: Michael L. Moskowitz

A Houston Bankruptcy Judge’s recent decision brings into question the need for – and efficacy of – the longstanding Jay Alix Protocol. In re McDermott Int’l Inc., 20-30336 (Bankr. S.D. Tex. May 20, 2020). Read the full opinion.

The J. Alix Protocol was originally developed to reconcile the dual nature of chief restructuring officers as both officers of the debtor – and thus insiders – and professionals providing bankruptcy restructuring services to the debtor’s estate. When the Bankruptcy Code initially was developed, the role of chief restructuring officer did not exist. As such, the Bankruptcy Code did not specifically address their retention which, on the surface, appears to fly in the face of section 327’s disinterested standard.¹ As a result of this inconsistency, and settlements between restructuring firm Jay Alix and Associates and the Office of the United States Trustee regarding the firm’s retention, the Jay Alix Protocol was established and has been widely followed since. In simple terms, the Jay Alix Protocol provides that debtors should retain restructuring professionals pursuant to section 363² of the Bankruptcy Code, while applying the relevant disclosure and conflict provisions of section 327(a).