Service of Unsecured Creditors’ Committees

Official committees of unsecured creditors (Committees) serve in important function in Chapter 11 bankruptcies.  Committees preserve the rights of unsecured creditors can have a major impact on the outcome of any Chapter 11 proceeding.

In each Chapter 11 case, the United States Trustee is charged with appointing a Committee and will gauge the interest of unsecured creditors to determine if there is sufficient interest to form a Committee.  The United States Trustee will solicit interest from unsecured creditors by providing unsecured creditors with a response form to indicate their interest in serving on the Committee.  The deadline for responding is often only a few days due to the quick pace at which Chapter 11 cases proceed.  The Committee is usually comprised of the debtor’s largest unsecured creditors, although in certain cases specific parties in interest, such as pension funds or a union, may be appointed to the Committee.

Once the Committee is appointed by the United States Trustee, it will normally hold an organization meeting where it will elect a chairperson and will discuss the employment of professionals.  The Committee may also approve bylaws and dates and venue for future meetings.  The Committee may meet by phone or in person.

 Compensation of the Committee’s professionals (which may include attorneys, accountants, and financial advisors) is paid by the debtor, not the individual Committee members.  Although Committee members are not compensated for the time that they spend on Committee duties, they are reimbursed their out of pocket expenses incurred in serving on the Committee.  Other than the time spent by individual Committee members, service on a Committee comes at little or no cost to its members.

Committee members may retain their own counsel, at their own expense, but they are not required to have separate counsel.  Committee counsel does not represent individual Committee members, but represents the Committee in fulfilling its duties under the Bankruptcy Code.

A Committee and its members are fiduciaries for all other unsecured creditors.  In some cases, this may mean that a member must put their own interest aside.  This does not mean that individual members cannot pursue their own interest; it only means that they cannot use the Committee to further their own interest.

If given the opportunity, a creditor should carefully consider the opportunity to serve on a Committee.  While such service is an additional time commitment, it is also an opportunity to have a significant impact on the course of a Chapter 11 case.

 

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