United States: E-Discovery Takes The Chaos Out Of Your Bankruptcy Case

Last Updated: November 24 2016
Article by Yann Geron

Yann Geron co-authored the Corporate Counsel article, "E-Discovery Takes the Chaos Out of Your Bankruptcy Case."

A bankruptcy trustee turns the key to an office. What awaits is a possible wasteland: The space is abandoned and unkempt, computer systems are unintelligible and inaccessible and institutional knowledge of the company has walked out the door with the employees. Yet, in the face of such disorder, the trustee is charged with building a comprehensive dataset and maintaining a spotless chain of custody that will be valuable in potential litigation.

At the outset of a case, a trustee needs to address a number of concerns, including IT resources and institutional knowledge, financial reporting systems, data retention and remote access and spoliation. How is this accomplished most effectively? The answer lies in building a robust e-discovery program. A comprehensive e-discovery program utilizes technology and data management tools to quickly access and review large volumes of financial and business data, as well as offer best practices to avoid potential future spoliation issues.

An Expanding Data Universe and Diminishing Institutional Knowledge

The number of electronic data sources, ranging from webmail to mobile devices to social platforms and cloud apps, is rising exponentially in the digital age. According to an EMC Digital Universe study, data produced by an organization continues to grow at an annual rate of 40 percent. This ever-expanding data universe presents concerns for bankruptcy trustees. The trustee is charged with finding, isolating and maintaining a vast amount of pristine data in order to effectively administer the estate. This includes managing accounts receivable collections and inventory liquidations, as well as notifying creditors and identifying assets.

One of the key issues is the gap of time where you have to control the data before the actual mechanics are in place. It is very difficult to discover where all of the data lies. You don't have easy access to the passwords or to the organization's data map. Gaining access to critical data then relies upon identifying key people—and this is not typically senior management. It is the people at the desk, those who know the mapping system, have the passcodes and know how to gain access to the data. Locating these individuals is extremely difficult—they simply walk away because they aren't getting paid. The trustee must understand what legal tools are available to the trustee and be able to identify who holds the keys to the kingdom.

On top of that, data is often stored in a variety of disparate sources and in formats that are unusable. You never know where the information is going to be housed. For example, social media platforms contain a significant amount of correspondence with employees and customers. Or, a trustee might walk into an organization and not see any files on the desktop. The files are instead stored on the web. It is crucial to know who has access to the data and to be able to utilize the latest e-discovery tools in order to effectively and efficiently build a case.

If litigation is anticipated, the trustee must take the necessary steps to safeguard the data and preserve an unaltered copy to be used as the litigation proceeds. Unfortunately, in some cases, the likelihood of litigation isn't known at the onset of the case.

Trustees are concerned about the integrity of the data not only in preparation for possible litigation, but also because when they confirm that data to the court or other parties, their personal integrity is at stake. For these reasons, it is best for them to make and preserve copies of the data to avoid spoliation issues later in the case.

(Expert tip: We suggest bankruptcy trustees take reasonable steps to make complete forensic images of the data at the earliest stage. Retain the information, have it preserved and then shut everything down. Taking this approach enables trustees to have the information from the outset, and minimize and control data costs going forward.)

Use the Latest Tools to Build a Comprehensive Program

Advances in e-discovery are a breath of fresh air for the trustee. The growing magnitude of electronically stored information (ESI) makes building and implementing an e-discovery protocol even more vital. Not only can data integrity be maintained more easily, but with only 22 percent of the data considered useful, according to the EMC Digital Universe study, e-discovery builds massive efficiency in locating and reviewing the most relevant information related to the case.

As trustees wind down the operations of the business, they need to manage data and ensure correct information is available to financial advisers and any other parties that may require access. Without advanced data mining and e-discovery technologies, however, this task can be arduous. If a trustee is not using the correct query system, the data can be overwhelming. Sometimes years' worth of work-in-process (WIP) is not readily detectable within the accounting data. Accessing this information may require tapping into the organization's email system to obtain the exchange of information and uncover the hidden work-in-process.

In situations such as this, forensic tools exist to index the vast amount of email messages in a company's system and organize data so that trustees can rapidly access relevant information at the moment they need it. Such tools have the capacity to sort through copious email threads and eliminate duplicative data. This includes tracking email attachments, as well as documents that exist within Microsoft Office and similar programs.

Electronic data is changing at a rapid pace, including its use, source and sheer volume. A bankruptcy trustee is entrusted to act swiftly and to efficiently handle data challenges, following best practices. Each case is unique and comes with its own particular requirements. Trustees who remain attuned to the nuances involved in the process gain a tremendous advantage and will be able to successfully mine, assess and control disparate data.

Reprinted with permission from the November 22, 2016 issue of Corporate Counsel. (c) 2016 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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