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The role of creditors’ committees in Chapter 11 bankruptcy

Orantes Law Firm Oct. 12, 2012

Appointed by the U.S. trustee in Chapter 11 cases, creditors’ committees are managed by the bankruptcy trustee and are usually comprised of unsecured creditors with multiple claims against a debtor. Their impact on a Chapter 11 bankruptcy can be significant, depending on the specifics of the case.

Creditors’ committees are in charge of:

  • Consulting with the debtor

  • Investigating the debtor’s business conduct and operations

  • Helping ensure proper management of the business

  • Helping formulate the Chapter 11 plan

In smaller cases, trustees may have some difficulty finding enough willing creditors to serve on the creditors’ committee. The Bankruptcy Code provides that a creditors’ committee does not need to be appointed in such “small business debtor” cases where:

  • The debtor is engaged in commercial or business activities that are not primarily related to the ownership or operation of real property

  • The debtor’s commercial or business activities have secured and unsecured debts of $2,343,300 or less

  • The court or trustee has determined that there is not a creditors’ committee to appoint or the committee does not provide sufficient oversight of the debtor

In those cases, the debtor in possession must provide more information to the court and is subject to additional oversight by the trustee appointed to the case. For example, the U.S. trustee will meet with the debtor in what is called an “initial interview.” During that interview, the trustee will speak with the debtor about the business’ viability, the debtor’s business plan and the debtor’s obligations and responsibilities.

Each bankruptcy is unique and each business going through a Chapter 11 will face unique challenges. An attorney experienced with both sides of a Chapter 11 case will not only provide effective legal council that supports your business interests, but will also help ensure that you understand the specifics of your case, including the role of the creditors’ committee.

Source: United States Courts, “Reorganization Under the Bankruptcy Code: Creditors’ Committees,” 2012.