How Boards Should Exercise Oversight of the Chief Restructuring Officer in Chapter 11

When a company files for Chapter 11, one of the most important decisions a board can make is whether and how to bring in a chief restructuring officer (CRO). In many cases, the CRO quickly becomes the public and operational face of the debtor, interacting with lenders, vendors, and the court on a daily basis. At the same time, the board and senior management continue to carry fiduciary duties to the bankruptcy estate.

That combination creates risk. If the CRO’s role is not clearly defined, authority can drift away from the board, conflicts of interest can emerge, and valuable estate claims can be compromised without proper oversight. When structured carefully, however, a CRO can stabilize operations, impose discipline, and enhance credibility with creditors and the court. When structured poorly, the role can trigger challenges from creditor committees, scrutiny from the U.S. Trustee, and even motions to appoint a trustee.

Today, CROs are common in large Chapter 11 cases. When liquidity tightens and negotiations with lenders become urgent, boards often turn to experienced restructuring professionals to manage cash, rationalize operations, and demonstrate that the case is being handled seriously. The CRO’s presence can reassure stakeholders that the company is confronting its problems head-on.

But it is critical to understand what a CRO actually does. Unlike a trustee, a CRO is not a statutory officer created by the Bankruptcy Code. The CRO’s authority comes from contracts and court approval, not from the statute itself. That means the real work happens in the engagement letter and the retention order. For boards and in-house counsel, the question is not simply whether to hire a CRO, but how to design the role so it supports board governance rather than replacing it.

How the legal structure works (in plain terms)

In Chapter 11, the company usually stays in control of its business as a “debtor in possession.” That means the board and officers continue to run the company, subject to court oversight. The CRO fits into that structure as another officer, albeit one with an unusually broad mandate.

If the CRO is retained as a professional under the Bankruptcy Code, the court must approve the engagement. The CRO must be independent, free of conflicts, and transparent about prior relationships with lenders, creditors, or other parties in the case. Those disclosures are not a formality. Courts expect them to be complete and updated as circumstances change.

Judges have repeatedly pushed back when parties try to treat CROs as something outside the bankruptcy system. In In re McDermott International, Inc., 614 B.R. 244 (S.D. Tex. 2020), the court rejected efforts to give a restructuring professional sweeping authority while avoiding the rules that normally apply to professionals who exercise real control over a Chapter 11 case. Likewise, in In re Nine West Holdings, Inc., 588 B.R. 678 (Bankr. S.D.N.Y. 2018) the bankruptcy court made clear that crisis managers cannot be insulated from court oversight simply because their role is described as “contractual.”

The takeaway is straightforward: the more power a CRO has, the more closely the court will examine how that power was granted and supervised.

Why courts worry about CRO power

In practice, CROs often act like interim CEOs during Chapter 11. They negotiate debtor-in-possession financing, oversee cash management, supervise asset sales, and testify in court about whether the company’s plan is realistic. That concentration of responsibility can be efficient, but it also raises concerns.

Courts become especially cautious when the CRO was recommended by a secured lender, when insider investigations are ongoing, or when the company is moving quickly toward a sale or settlement that could affect estate claims. The concern is not that CROs are untrustworthy, but that governance lines can blur if no one is clearly in charge of oversight.

Judges have drawn a firm distinction between CROs and trustees. A trustee replaces management and the board. A CRO does not. In In re Adelphia Communications Corp., 336 B.R. 610 (Bankr. S.D.N.Y. 2006), the court emphasized that CROs operate under board direction and owe fiduciary duties similar to other officers. Unless a trustee is appointed, the board remains responsible.

As a result, courts focus less on job titles and more on behavior. Did the board stay involved? Were major decisions brought back to directors for approval? Was information flowing upward? Or did the CRO effectively take over without meaningful checks?

Red flags for courts

Certain patterns tend to attract judicial scrutiny:

• Engagement letters that give the CRO “full authority” without clear limits
• No board approval required for asset sales, financing, or settlements
• Unilateral power to release estate claims
• Incomplete or late conflict disclosures
• Minimal reporting to directors
• Signs that the CRO is aligned with a single creditor group

None of these is necessarily fatal on its own, but together they suggest that governance has slipped.

Practical guardrails that make a difference

The answer is not to weaken the CRO’s ability to act. It is to set boundaries clearly and early.

A strong CRO engagement should make clear that the CRO works for the company and the estate as a whole—not for any individual lender or constituency. Independence should be reinforced through full disclosure of relationships and ongoing updates as the case evolves.

The agreement should spell out what the CRO can do day to day, while reserving major decisions for the board or a special committee. Asset sales, new financing, settlements, releases of claims, and wind-down decisions should not happen without director involvement and, where required, court approval.

Compensation also matters. Incentives that reward speed alone, especially speed toward liquidation, can distort priorities. Courts are more comfortable when compensation aligns with preserving value, stabilizing operations, or achieving a confirmable plan.

Just as important, the engagement should make clear that the CRO does not replace the board, does not override a trustee if one is later appointed, and respects creditor-committee rights. Chapter 11 has built-in checks and balances. The CRO should operate within them.

Accountability: What boards should actually do

For directors and general counsel, governance is not theoretical. Concrete critical steps include:

• Approving the CRO appointment by formal board resolution
• Keeping board minutes that reflect real discussion of cash, strategy, and risk
• Requiring regular written reports from the CRO on liquidity and operations
• Reserving board approval for major transactions and settlements
• Personally reviewing conflict disclosures and updates
• Avoiding compensation structures tied solely to liquidation speed
• Using a special committee when insider or lender conflicts exist
• Preserving the right to remove the CRO for cause
• Having engagement letters reviewed by both corporate and bankruptcy counsel before filing them with the court

Courts often look at the paper trail. Real oversight shows itself.

Conclusion

CROs play a vital role in modern Chapter 11 cases. But because their authority comes from contracts rather than statute, the risk of overreach is real if boards are not deliberate.

When the role is structured thoughtfully, with clear authority, defined limits, and active board engagement, a CRO can be a powerful stabilizing force. When those guardrails are missing, the same role can become the focal point for governance disputes and court intervention.

In Chapter 11, structure is substance. Getting the CRO role right protects both the case and the board itself.