ABI Commission to Study the Reform of Chapter 11
IV. Proposed Recommendations: Commencing the Case 39
example, they will not receive any distributions in the case or their claims will be paid in full.
• The court sua sponte, the U.S. Trustee, or a party in interest should be able to initiate a hearing to determine whether the appointment or continuation of an unsecured creditors’ committee would be in the best interests of the estate.
• The U.S. Trustee should continue to retain discretion to appoint a committee of equity security holders, more than one committee of unsecured creditors, or a single statutory committee for multiple affiliated debtors. Accordingly, no change to existing law is suggested on this point.
Statutory Committees: Background
The concept of a committee of creditors formed to monitor the debtor and its reorganization efforts stems from the equity receiverships of the late 1800s and Chapter XI of the Bankruptcy Act.140 The unsecured creditors’ committees that were formed in the equity receivership context were criticized for their close and arguably collusive relationships with the debtor.141 Nevertheless, Congress recognized the value in the committee structure, both in terms of their oversight functions and the dynamic tension that their presence and participation adds to restructuring negotiations.142 Congress thus maintained some form of committees in the Bankruptcy Act and extended that structure to all business reorganizations under chapter 11 of the Bankruptcy Code.
Section 1102 of the Bankruptcy Code provides that “the United States trustee shall appoint a committee of creditors holding unsecured claims”143 that “shall ordinarily consist of the persons, willing to serve, that hold the seven largest claims against the debtor of the kinds represented on such committee. . . .”144 The legislative history of section 1102 suggests that Congress intended to give unsecured creditors a stronger voice in the reorganization process.145 The unsecured creditors’
140 In an equity receivership, “creditors would petition the court for the receivership and form a protective or reorganization committee. In most cases, the reorganization committee, working with management, would be the successful bidder at the receivership sale.” Michelle M. Harner & Jamie Marincic, Committee Capture? An Empirical Analysis of the Role of Creditors’ Committees in Business Reorganizations, 64 Vand. L. Rev. 749, 758–760 nn. 46–59 (2011) (explaining history of creditors’ committees in bankruptcy and providing citations to additional resources). “Chapter XI charges creditors’ committees with overseeing the conduct of the debtor and negotiating the debtor’s plan of reorganization; for the most part, they were active participants in cases.” Id. at 760. 141 Justice Douglas observed: “In the welter of conflicting interests, ulterior objectives, and self-serving actions which flow from investment banker-management dominance over committees, these committees have lost sight of their essential functions which they can perform to advance the interests of investors.” To Amend the Securities Act of 1933: Hearing on H.R. 6968 Before the H. Interstate and Foreign Commerce Comm’n., 75th Cong. 24 (1937) (statement of William O. Douglas). 142 “The mandatory appointment of a creditors’ committee was intended to provide dynamic tension with the debtor that would stimulate the reorganization process through effective and efficient oversight and negotiation.” Miller, supra note 41, at 449. See also Michelle M. Harner & Jamie Marincic, The Potential Value of Dynamic Tension in Restructuring Negotiations, Am. Bankr. Inst. J., Feb. 2011, at 62–65; Thomas C. Given & Linda J. Philipps, Equality in the Eye of the Beholder — Classification of Claims and Interests in Chapter 11 Reorganizations, 43 Ohio St. L. J. 735, 735–36 (1982) (explaining “dynamic tension” in context of reorganization vs. liquidation restructuring options); Donald R. Korobkin, Bankruptcy Law, Ritual and Performance, 103 Colum. L. Rev. 2124, 2130 (2003) (explaining that results under bankruptcy laws often “spontaneously emerge . . . at a juncture of futility and loss, from the dynamic and generative tension of normative directives in unavoidable conflict”). 143 11 U.S.C. § 1102(a)(1). 144 Id. § 1102(b)(1). 145 “This section [1102] provides for the appointment of creditors’ and equity security holders’ committees, which will be the primary negotiating bodies for the formulation of the plan of reorganization. They will represent the various classes of creditors and equity security holders from which they are selected. They will also provide supervision of the debtor in possession and of the trustee, and will protect their constituents’ interests.” H.R. Rep. No. 95–595, at 401 (1977), reprinted in 1978 U.S.C.C.A.N. 5963, 6357.