Government seeks bankruptcy trustee for Dynegy Holdings

(Reuters) - United States Trustee Tracy David filed a motion with a bankruptcy court late Sunday night seeking the appointment of a Chapter 11 trustee in the ongoing Dynegy Holdings bankruptcy proceeding.

In her motion, David said, "The mismanagement of the debtors by their current management to the financial detriment of the debtors' creditors provides cause for the appointment of an independent fiduciary to manage the affairs of these debtors."

A bankruptcy trustee is often appointed when it may serve the bankruptcy estate's best interest, or when company executives are suspected of wrongdoing.

On Friday, Susheel Kirpalani, the court-appointed examiner in the case said Dynegy Inc harmed creditors by fraudulently transferring some coal-powered plant assets to itself before putting Dynegy Holdings into bankruptcy, and urged that the transfer be reversed.

Examiners work for the benefit of creditors, shareholders and the bankruptcy estate, and may investigate such allegations as dishonesty, fraud, incompetence and mismanagement.

"Current management is not in a position to assess the findings and conclusion of the examiner, and to pursue any and all of the appropriate remedies. Only a Chapter 11 trustee will have the statutory authority to do so," David said in her motion.

Dynegy Holdings, a unit of independent power producer Dynegy Inc, filed for bankruptcy in November to restructure expensive leases on power plants and lighten its debt load.

The case is In re: Dynegy Holdings LLC et al, U.S. Bankruptcy Court, Southern District of New York, No. 11-38111.

(Reporting by Tanya Agrawal and Swetha Gopinath in Bangalore; Editing by Sriraj Kalluvila)