Wednesday, March 4, 2009

more on "creditors' committee"

Section 1102(a) of the Bankruptcy Code charges the United States Trustee with the duty of organizing and appointing a committee of creditors holding unsecured claims. The creditor's committee does not "run the business" or otherwise control the assets of the debtor's estate. The debtor in possession (or trustee, if one has been appointed) is in control. It is assumed that the committee will represent the interests of all unsecured creditors and attempt to maximize recovery for all unsecured creditors in its negotiations with the debtor, the secured creditors, and other parties in the case. In order to aid the unsecured creditors' committee in accomplishing these goals, the Bankruptcy Code specifically sets out certain duties and powers of a committee. The Bankruptcy Code specifically provides that a creditors' committee may:

1. Review the progress and status of the case and discuss the same with the debtor. Also, the debtor is required to file periodic financial reports with the Court and the Office of the United States Trustee. These reports should provide valuable information for the committee.

2. Investigate the financial condition of the debtor, the operation of the debtor's business and the desirability of the continuance of the business.

3. Participate in the formulation of a plan.

4. Ask the Court to appoint an examiner in the case. An examiner is a professional (often a CPA) with the expertise to investigate the business and file a report drawing conclusions regarding the viability of the same, the competence of past or current management, possible fraud, etc.

The Bankruptcy Code provides further that the debtor must meet with the creditor's committee to transact such business as may be necessary and proper, and that the debtor shall furnish to the committee, upon request, information concerning the debtor's business and its administration. If in the performance of its duties, the committee would be aided by the services of an attorney, accountant or other professional, the Code provides a means for the appointment of such individuals as may be selected by the committee. The compensation of such individuals will be paid from assets of the debtor's estate, and will not be chargeable directly to individual committee members.

The Office of the United States Trustee will appoint committee members. The committee ordinarily consists of those persons who hold the seven largest unsecured claims and who are willing to serve. Generally, at the first meeting of creditors the committee will:

1. Elect a chairman.

2. Discuss the status of the case, with and without the debtor present.

3. Consider whether and which of the committee's powers should be invoked.

4. Make plans for future meetings. Such meetings will not involve the Court and will be called at times and places convenient to committee members.

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