Updates in the Law
Often unsecured creditors in a Ch. 11 bankruptcy case do not get actively involved in the case because they are not in a strong position to recover significant amounts on their claims since their claims are not secured by liens. They also usually do not hire attorneys to pursue their rights in bankruptcy, especially if their claims are not large, because they believe the amount of legal fees will outweigh any benefit they might receive from the representation. It is for these reasons that the Bankruptcy Code allows for the creation and appointment of an Unsecured Creditors’ Committee (“Creditors’ Committee”) in standard Ch. 11 cases to represent the interest of all unsecured creditors in the bankruptcy case.
The following are some facts which you should know about appointment and operation of Creditor Committees in Ch. 11:
However, the United States Trustee may choose not to appoint these types of creditors to serve on the Creditors’ Committee if it does not believe that they are representative of the Debtor’s unsecured creditor class. Id. Common sense applies on appointments to a Creditors’ Committee. For example, if a creditor has a claim that is 95% secured and 5% unsecured, that creditor will almost certainly not be appointed to an Unsecured Creditors’ Committee.
a. Consult with the debtor in possession (or trustee) concerning the administration of the case
b. Investigate the acts, conduct, assets, liabilities, and financial condition of the debtor
c. Investigate the operation of the debtor’s business and the desirability of the continuance of such business
d. Investigate any matters relevant to the formulation of a plan
e. Participate in the formulation of a plan, advise those represented by such committee of such committee’s determinations as to any plan formulated, and collect and file with the court acceptances or rejections of a plan
f. Request the appointment of a trustee or examiner
g. Review and possibly object to any applications for administrative expenses, including but not limited to professional fees
h. Negotiate executive compensation issues
i. Negotiate bid procedures in a proposed sale of substantially all the assets of the estate
j. Acquire the right to pursue avoidance and other chapter 5 claims or other claims on behalf of the estate, and
k. Investigate the legitimacy of pre-petition secured debt
11 U.S.C. §1103(c); U.S. Trustee Program and Policy and Practices Manuel, Ch. 11 Administration, Section 3-4.3 et seq. (Feb. 2020)
If you ever have any questions about Creditors’ Committees in a Ch. 11, please feel free to contact Sam King. Also, our firm has experienced, highly qualified attorneys who are able to effectively represent a Creditors’ Committee in a Ch. 11 case to assist it in maximizing the return on unsecured creditor claims. If you are on a Creditors’ Committee and are interested in retaining legal counsel for the Committee, please contact us.