Joann Inc.’s recent attempt to engage Deloitte Tax LLP has been met with scrutiny and opposition from the US Trustee, a Justice Department unit responsible for ensuring compliance in bankruptcy proceedings. The challenge arises from the payments nearing $3 million made by Joann to Deloitte prior to their bankruptcy filing, sparking concerns over potential conflicts of interest.
In an objection filed in the US District Court for the District of Delaware, the US Trustee argues that these pre-bankruptcy payments disqualify Deloitte from being an unbiased representative for Joann in ongoing tax matters. The trustee’s argument hinges on the principle that such prior engagements could unduly influence the representation and prejudice the creditors involved in Joann’s bankruptcy proceedings.
- Joann’s bid to hire Deloitte stems in part from their past relationship, with Deloitte having provided services to the retailer since 2018, including during its previous Chapter 11 filing.
This issue further complicates Joann’s financial restructuring efforts, marking its second Chapter 11 filing within a year. The unfolding legal proceedings will likely set a significant precedent for how previous financial relationships can impact professional engagements in bankruptcy law.