Bankruptcy and Creditors’ Committees
Unsecured creditors have the opportunity to create a creditors’ committee in every Chapter 11 case. The U.S. Trustee will send out information to all of the unsecured creditors to determine if there is interest in forming a committee. Then, the largest three to five creditors that expressed interest will be asked to serve the committee. Formation of the committee often takes place within the first few months of the bankruptcy filing.
The official unsecured creditors’ committee serves an important role in large Chapter 11 bankruptcies. They act on behalf of all of the unsecured creditors in the bankruptcy, as their interests should all be generally aligned in a Chapter 11 bankruptcy.
The Role of the Unsecured Creditors’ Committee
The Committee gives all unsecured creditors a voice without forcing them to spend money on attorneys’ fees on an individual basis. All of the unsecured creditors should be treated equally in the bankruptcy, which means that they all share the same relative interests. Those sitting on the committee act on behalf of all of the creditors, not just themselves.
The committee itself can hire counsel and other professionals, such as accountants or appraisers. The debtor’s estate will then pay for these fees, instead of forcing the individual members of the committee to front these costs.
The major role of the committee is to ensure that unsecured creditors’ rights are protected throughout the bankruptcy. The committee can conduct investigations to increase the value of the bankruptcy estate as well. The committee can look into potential fraud, suspicious transfers, and monitor the bankruptcy to ensure that the debtor is not wasting funds or using money unwisely. The committee can even propose a Chapter 11 plan itself.
Advantages of Being a Member of the Committee
Members of the committee receive in-depth information regarding the bankruptcy. They are close to the action regarding what the debtor is doing and how the bankruptcy is progressing. Members have a voice in the bankruptcy in a way that individual creditors simply do not have.
There is a time commitment and fiduciary responsibility associated with serving on the committee, but for those who are owed large sums of money, it is often worth the time and effort to be involved. Creditors’ committees can have a significant impact on the outcome of the bankruptcy and how the plan will look when it is finally confirmed.
In most situations, if you have the opportunity to serve on the committee, it is in your best interest to take it. If you have specific questions about serving on the committee, you can contact our knowledgeable team here at MaxwellDunn Law by calling 248-809-1395.