Creditors' Committee in Chapter 11: Key Roles Explained
The role of the creditors' committee in Chapter 11 bankruptcy cases is multifaceted and critical to ensuring that the interests of unsecured creditors are represented and protected throughout the bankruptcy process. Here are the key aspects of their role:
Formation and Purpose
- Appointment: The creditors' committee is appointed by the United States Trustee (UST) in Chapter 11 cases to represent the interests of unsecured creditors. 124
- Purpose: The primary purpose is to ensure that unsecured creditors, who may have relatively small claims, are adequately represented in the bankruptcy proceedings. 34
Responsibilities and Powers
- Consultation and Investigation: The committee consults with the debtor's counsel on case administration and investigates the debtor's pre-petition actions, financial condition, and asset transfers. 127
- Plan of Reorganization: The committee plays a significant role in drafting and negotiating the plan of reorganization and disclosure statement. 126
- Appointment of Trustee or Examiner: The committee can request the appointment of a trustee or examiner to oversee the case if necessary. 127
- Fiduciary Duty: Committee members owe a fiduciary duty to all unsecured creditors, not just their own interests, and must act in the best interest of the creditor class as a whole. 248
Operational Aspects
- Composition: The committee typically consists of the debtor's largest unsecured creditors, usually between three and seven members. 124
- Professional Assistance: The committee can hire professionals such as attorneys and financial advisors, with fees paid by the debtor's estate. 256
- Decision-Making: The committee should adopt clear bylaws to guide its operations and decision-making processes. 2
Influence and Impact
- Influence on Case Outcome: The committee's opinions and recommendations can significantly influence the court's decisions and the overall outcome of the case. 248
- Representation: The committee ensures that unsecured creditors have a voice in negotiations with the debtor and other creditors, helping to balance competing interests. 347