Referral fee disclosure rules for CROs, trustees, assignees and receivers

The short answer: disclose early, and expect some roles to decline

A referral reward is a financial interest connected to a client's or an estate's transaction, so a restructuring professional should treat it as something to disclose before the introduction, not after a deal closes. Whether you may keep it depends on your role. A professional retained by a bankruptcy estate or appointed by a court answers to that court's orders and to the bankruptcy rules on connections and compensation. An out-of-court adviser answers to the engagement letter, the client's informed consent and any professional code that applies. When in doubt, decline the reward and make the introduction anyway; the company or estate can apply directly.

This is general information, not legal, tax or financial advice. Confirm with your own counsel, tax adviser or professional body before acting.

What the rules cover

Bankruptcy employment and compensation

For professionals in a bankruptcy case, three provisions drive the analysis, and estate counsel should read the current statute and rule text with you, since this page does not reproduce it:

• Section 327 of the Bankruptcy Code (employment of professional persons) sets the standards for professionals a trustee or debtor in possession may employ, including disinterestedness and the absence of adverse interests.
• Bankruptcy Rule 2014 (employment of professional persons) governs the application to employ and the disclosure of a professional's connections with the debtor, creditors and other parties in interest. Ask counsel whether the disclosure must be updated as new connections arise during the case.
• Section 504 (sharing of compensation) restricts sharing compensation awarded in the case, alongside the court's own procedures for approving professional fees.

A referral arrangement with a company that may license estate assets could be a connection or interest these provisions reach. That is a judgment for counsel and, ultimately, the court.

Court orders outside bankruptcy

Receivers act under appointment orders, and assignees under state assignment statutes and, in some states, court supervision. Those orders and statutes typically control how the fiduciary is paid and what must be reported. Treat a referral reward as compensation-related unless the court or counsel tells you otherwise. The procedural differences between an ABC and a section 363 sale also change who has to approve what.

Professional ethics codes

• Lawyers. The ABA Model Rules are a template that each state adopts in its own form, as the ABA's index of the Model Rules notes. Model Rule 1.8(a), relevant when a lawyer would hold a financial interest connected to a client matter, permits a business transaction with a client only on fair and reasonable terms disclosed in writing, with written advice to seek independent counsel and the client's signed informed consent, per the rule text. Ask your state bar how that and the conflict rules apply to a reward linked to a client's transaction.
• CPAs. Many financial advisers and CROs work in CPA firms. Under the commissions and referral fees rule (ET 1.520) in the AICPA Code of Professional Conduct, a member may not accept a commission for recommending a product or service to a client when the member or firm also performs an audit, review, certain compilations or an examination of prospective financial information for that client, and permitted referral fees must be disclosed. State boards can be stricter, as the New Jersey Society of CPAs' guidance on commissions and contingent fees shows.
• Turnaround and insolvency associations. Professional bodies for turnaround, insolvency and receivership practitioners publish their own codes of conduct; check the one you have agreed to follow.
• Public recommendations. If you recommend SourceX publicly while earning referral compensation, FTC staff guidance on endorsements says the connection should be clearly disclosed close to the recommendation.

How it applies in common situations

Decline, disclose or redirect: a decision rule

Use the simplest rule that protects your position and the estate's:

1. If a court appointed you or approved your retention in the matter, assume disclosure and approval are required. If approval cannot be obtained before the reward would be earned, decline it.
2. If you owe fiduciary duties to creditors or the estate, ask whether keeping the reward is consistent with those duties at all. Many professionals in these roles choose to decline.
3. If you advise out of court, disclose in writing and obtain the client's informed consent before you introduce.
4. If you cannot keep the reward, decide that before registering. Any other arrangement has to fit the published program terms, so raise it with SourceX and your counsel first.

The reward is a share of SourceX's fee and is never deducted from what the company or estate receives. That helps the disclosure, but it does not remove the conflict question.

Disclosure and consent good practice

• Disclose when the arrangement arises, at the introduction, not when the reward is paid.
• Describe it accurately: a share of SourceX's fee, contingent on the buyer paying and SourceX receiving its fee, capped per referred company and never guaranteed.
• Update the disclosure if the facts change, for example when a license is signed.
• Keep the licensing recommendation independent: the estate's decision should rest on price, terms and the rights review, not on your reward.
• Keep counsel's advice and your own analysis in the file.

For reference, partners earn 25% of the eligible platform fees SourceX actually collects from the referred company's licensing deals, capped at $100,000 per referred company, payable only after the buyer pays and SourceX receives its fee. If you want a primer on how these arrangements are usually documented, see what is a referral fee agreement.

Questions to ask your counsel or professional body

1. Is a referral arrangement with SourceX a connection or interest I must disclose in this case, and in which filing?
2. Would keeping the reward affect my disinterestedness or the approval of my fees?
3. Does my appointment or retention order address compensation from third parties?
4. Do my state's professional rules allow me to accept it with disclosure, or bar it?
5. If I decline, should that decision be recorded in the case?

When to decline outright

• You are a trustee, examiner or committee professional and the court has not approved the arrangement.
• The reward would arrive while your fee application is pending and the arrangement has not been disclosed.
• Your firm performs attest services for the company.
• Your state's professional rules bar third-party referral fees in the matter.
• The client or estate has not given informed consent.

Next step

Once you have counsel's view, register as a partner if you may accept the reward, or make the introduction without one and let the estate file its own application at sourcex.si/apply. Receivers can start with the referral program for court-appointed receivers, and the approval mechanics behind a license are covered in court approval for a data license in chapter 11.