11 U.S.C. Section 1184 - Rights and Powers of the Debtor

What Is Section 1184?

Section 1184 provides that, subject to limitations, the debtor in possession in a Subchapter V case "shall have all the rights, other than the right to compensation under section 330, and powers, and shall perform all functions and duties, except the duties specified in paragraphs (2), (3), and (4) of section 1106(a), of a trustee serving in a case under this chapter, including operating the business of the debtor."

The practical effect is that the Subchapter V debtor remains in control of the business, continues to manage day-to-day operations, may use cash collateral subject to Section 363, may assume or reject executory contracts under Section 365, and may pursue avoidance actions under Sections 544, 547, 548, and 550, all without intervention from the Subchapter V trustee for ordinary-course matters.

Limitations on the Debtor's Powers

Section 1184 excludes three categories of duties that would otherwise belong to a trustee under Section 1106(a):

• Section 1106(a)(2): Filing the list of creditors and equity-security holders, schedules, and statement of financial affairs if the debtor has not done so.
• Section 1106(a)(3): Investigating the acts, conduct, assets, liabilities, and financial condition of the debtor.
• Section 1106(a)(4): Filing a statement of the investigation, including any fraud, dishonesty, incompetence, misconduct, mismanagement, or irregularity in management.

These investigation duties are reserved to the Subchapter V trustee under Section 1183(b)(7), to be performed only to the extent the court directs. The default is no formal trustee investigation in Subchapter V, although the trustee retains the right to gather information through the monitoring duties of Section 1183(b)(1).

Operating the Business

Section 1184 expressly includes the power to operate the business of the debtor. This authority traces to Section 1108 (operation of business in Chapter 11) and is exercised under the supervision of the United States Trustee and the Subchapter V trustee. The debtor must comply with the operating-report requirements of Section 1187 and the periodic financial-reporting obligations of the United States Trustee's office.

Ordinary-course transactions do not require court approval. Transactions outside the ordinary course require notice and hearing under Section 363(b), with the debtor in possession acting in place of the trustee.

Avoidance Actions and Litigation

The Subchapter V debtor in possession may bring avoidance actions under Sections 544, 545, 547, 548, 549, and 553, recovering property or value for the estate. Settlements of estate causes of action are subject to Federal Rule of Bankruptcy Procedure 9019 and require court approval. The debtor in possession's standing to pursue such actions is unaffected by the Subchapter V designation.

Section 547 preferences and Section 548 fraudulent transfers are the most commonly invoked avoidance powers. The two-year reach-back for Section 548 actual and constructive fraudulent transfers, and the 90-day (or one-year for insiders) preference period, apply identically in Subchapter V.

Loss of Debtor-in-Possession Status

If the court grants a motion to remove the debtor under Section 1185, the powers conferred by Section 1184 transfer to the Subchapter V trustee. The trustee then operates the business under Section 1183(b)(4), with corresponding compensation and reporting responsibilities. Removal is reserved for cause (fraud, dishonesty, incompetence, gross mismanagement, or failure to perform plan obligations) and is uncommon in practice but represents the principal accountability check on debtor mismanagement.

Related Bankruptcy Code Sections

This section operates in concert with several other provisions of the Bankruptcy Code:

• Section 1183 - Subchapter V trustee duties
• Section 1185 - Removal of debtor in possession
• Section 1187 - Duties and reporting requirements
• Section 363 - Use, sale, or lease of property
• Section 365 - Executory contracts and unexpired leases
• Section 547 - Preferences

Understanding how these sections interact is important for debtors, creditors, trustees, and counsel navigating a bankruptcy case.