Bankruptcy

Lesson 44: Creditor Committees in Chapter 11

In Chapter 11 bankruptcy, creditor committees play a vital role. These committees act like a superhero team for creditors, ensuring their rights are protected throughout the bankruptcy process.

Role and Function of Creditor Committees

Think of creditor committees as the Avengers of the creditor world. They are usually made up of the largest unsecured creditors and have three main superpowers:

Negotiating with the debtor on the terms of the reorganization plan
Investigating the debtor's financial affairs
Participating in the formulation of the reorganization plan

Note: Creditor committees are usually formed within a few weeks after the Chapter 11 filing.

Appointment of the Committee

The United States Trustee appoints the members of the creditor committee. The committee can include representatives from various types of creditors, such as trade creditors, bondholders, and others.

Example of Committee Appointment

The US Trustee appoints a seven-member committee comprising the largest unsecured creditors.

Authorities and Responsibilities

The creditor committee has specific authorities and responsibilities under the Bankruptcy Code. These include consulting with the debtor on the administration of the case and investigating the acts, conduct, and financial condition of the debtor.

Important: The committee's actions must always align with the best interests of all creditors represented.

Communication with Creditors

The committee serves as a communication channel between the debtor and the creditor body. It ensures that all creditors are informed about significant developments in the bankruptcy case.

Mermaid Diagram: Creditor Committee Workflow

graph TD; Debtor-->US_Trustee; US_Trustee-->Creditor_Committee; Creditor_Committee-->Creditors; Creditor_Committee-->Debtor; Creditors-->Creditor_Committee;

Conclusion

Creditor committees are a cornerstone of the Chapter 11 reorganization process. By representing the interests of unsecured creditors, they help ensure that the debtor's reorganization plan is fair and equitable.

For more information on creditor's rights in bankruptcy, visit our previous lesson on adequate protection for creditors.