In many Chapter 11 business bank - ruptcies, the office of the U.S. Trustee (the “UST”) will appoint a representative body of unsecured creditors (the “Com mittee”) to represent the interests of all unsecured creditors. The Committee is selected from unsecured creditors of the debtor who generally hold the largest unsecured claims against the debtor, are not “insiders” of the debtor and are willing to serve. A potential Committee member’s willingness to serve is demon strated through returning the creditor questionnaire to the UST and/or attending the formation meeting when scheduled. Typically, the forma - tion meetings are scheduled one to three weeks after the filing of the petition provided the UST determines there is sufficient interest and need for a Committee. With Porzio’s exten sive experience serving as counsel to various committees, we are often asked to describe the advantages of serving on a Committee. Below are some of the key advantages to consider:
Information–Serving on a Committee is the most effective way to be informed of significant case developments in real time. one of the primary functions of a Committee is to keep the general unsecured creditor body as a whole informed and, as a consequence, a Committee will typically receive status reports from its professionals with the most up to date information. These status reports will include summaries of case developments and provide insight into anticipated next steps in the Chapter 11 case. From these status reports, the members of a Committee will learn in real time the likelihood of liquidation or reorganization of the debtor’s business and expected distribution/dividends to be received by unsecured creditors. The value of receiving this information to a potential Committee member may vary depend - ing on the size of the creditor’s unsecured claim, however, without question, the Committee stands in a superior position concerning receipt of this vital information.
Impact–The Committee can play a defining role in a Chapter 11 case, whether the case is ultimately a liquidation or reorganization. Among the duties of a Committee is the examin - ation of the operation of the debtor’s business and the conduct of the debtor’s principals. Additionally, the Committee will influence the admini - stration of the Chapter 11 case and actively participate in developing the plan for emergence from Chapter 11. given the impact a Committee has on essentially all major decisions in a Chapter 11 case, by participating on the Committee, a creditor can protect the interests and ensure the fair treatment of all unsecured creditors as a whole.
Industry Contacts–Serving on a Committee provides opportunities to meet and expand on industry contacts for effective, targeted net working. Whether fellow Committee members are vendors, competitors or entities in comple mentary businesses, serving on a Committee provides a framework to develop relationships that will survive the Chapter 11 case in significant ways.
Education–In today’s economy, it is a reality that certain industries will experience multiple Chapter 11 filings from businesses in their sector. Many creditors in a Chapter 11 case have had or will have experience with multiple bankruptcy filings. While each Chapter 11 case is distinct, by serving on a Committee, a creditor can be educated on the Chapter 11 process from the inside. This knowledge will only serve to help the creditor better protect its interests and understand its rights in subsequent bankruptcy cases.
Cost Management–When formed, the first task for the Committee is to select an attorney and other professionals to guide and assist it in fulfilling its duties/responsibilities, as well as to protect the interests of unsecured creditors as a whole. The fees for retained professionals are borne by the debtor's estate and not by the individual members of the Committee— resulting in the sharing of these administrative costs. The professionals will not represent individual creditors or Committee members during the Chapter 11 case, but rather serve to assist the Committee in its represen - tative capacity. Serving on a Committee provides access to these professionals and an opportunity to impact the course of the Chapter 11 case in an efficient, economical manner.
Overall, the advantages of serv ing on a Committee in a Chapter 11 case are significant and creditors should consider these in deciding whether to seek a seat on the Committee. At Porzio, we can and often do assist creditors in making these decisions. Should you receive a notice of bankruptcy filing or questionnaire from the UST soliciting interest in forming a Committee, please keep these advantages in mind and feel free to contact us with any questions.