Creditors Committees Can Maximize Recoveries In Chapter 11 

CHAPTER 11 CREDITORS COMMITTEES

Creditors committees can shape the course of Chapter 11 proceedings for the benefit of creditors. The United States Trustee has the duty to seek the formation of an Official Committee of Unsecured Creditors from the twenty largest unsecured creditors that are willing to serve on the committee. Upon appointment, the committee members are charged with a fiduciary duty to the other creditors. Although the committee does not control the bankruptcy case, the committee is obligated to represent the interests of all unsecured creditors and seek to maximize recovery for all unsecured creditors. The debtor must meet with the creditors’ committee to transact such business as may be necessary and proper.  Upon request, the debtor must furnish the committee with relevant information concerning the debtor’s business and its administration.

POWERS OF A CHAPTER 11 CREDITORS COMMITTEE

The Bankruptcy Code provides that a creditors committee may:

  • Review the progress and status of the case with the debtor.
  • Investigate the financial condition of the debtor, the operation of the debtor’s business and the desirability of the continuance of the business.
  • Participate in the formulation of a plan.
  • Ask the Court to appoint an examiner to investigate the business and file a report drawing conclusions regarding viability, the competence of past or current management, possible fraud, or other matters.
  • Request the appointment of a trustee to control the estate assets.
  • Ask the Court to either dismiss the case or to convert the case to a Chapter 7 liquidation, if appropriate.

REPRESENTATION OF CREDITORS COMMITTEE

With Court approval, creditors’ committees may employ an attorney, accountant or other professional if their appointment would aid the committee in the performance of its duties. The compensation of those professionals is payable from assets of the debtor’s estate, and is not be chargeable to individual committee members.

Among other things, an attorney employed by a committee will consult with the debtor regarding the administration of the estate, investigate the debtor’s conduct in the operation of its business, and participate with the debtor in formulating a Chapter 11 plan of reorganization. With the assistance of counsel, a committee may also file a Chapter 11 plan of reorganization.

HOW WE CAN HELP

Davidson Backman Medeiros has nearly three decades of experience representing Chapter 11 Creditors Committees in Washington and Idaho. We offer a confidential consultation to any member of a creditors committees that would like to learn more about the role of the creditors committee in Chapter 11, and how a committee can shape the course of a Chapter 11 proceeding for the benefit of creditors.  Call (509) 624-4600 or email information@dbm-law.net for further information.

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