ABI Commission to Study the Reform of Chapter 11
IV. Proposed Recommendations: Commencing the Case 41
creditors’ committee in such cases under certain circumstances, and courts have generally approved this approach.154
Once appointed, the unsecured creditors’ committee serves in a fiduciary capacity with respect to the other unsecured creditors it represents and is granted certain powers under section 1103 of the Bankruptcy Code.155 The committee may, among other things, meet with the debtor, investigate the debtor’s affairs, participate in the plan formulation process, and request the appointment of a trustee or examiner.156 The committee may also retain professionals to represent it in the chapter 11 case.157 The expenses of committee members and the fees and expenses of the committee’s counsel and other professionals are generally paid from the estate.
Statutory Committees: Recommendations and Findings
The Commissioners had a robust discussion regarding the ongoing utility of unsecured creditors’ committees in chapter 11 cases. Some Commissioners felt that the mandatory nature of a committee of unsecured creditors was no longer warranted given that the fulcrum claims are now secured claims in many debtors’ capital structures. Thus, a committee may not be needed because (i) unsecured creditors anticipate being paid in full or (ii) the creditors it represents may be out of the money in many cases. These Commissioners proposed treating the appointment of all statutory committees as discretionary, the way in which the current law treats the appointment of equity security holders’ committees.158
Other Commissioners believed that the oversight function served by the unsecured creditors’ committee is critical to the process and should be preserved. The Commissioners noted the valuation challenge of determining early in a chapter 11 case that classes of debt are in the money or out of the money. For this reason alone, a per se rule based on the value of unsecured claims would be inadequate. The Commissioners also highlighted the role of the unsecured creditors’ committee in creating value or critically analyzing the debtor’s proposed reorganization plan to ensure that the enterprise value would not be artificially depressed or removed from the estate.
154 See, e.g., In re Orfa Corp. of Phila., 121 B.R. 294, 299 (Bankr. E.D. Pa. 1990) (rejecting a per se rule regarding the appointment of a committee for each related debtor due to “the additional and unnecessary administrative costs that would result if another committee and a potential enclave of additional professionals [are] appointed”); In re McLean Indus, Inc., 70 B.R. 852, 862 (Bankr. S.D.N.Y. 1987) (noting the cost of separate committees “could be extreme”). But see In re White Motor Credit Corp., 18 B.R. 720, 722 (Bankr. N.D. Ohio 1980) (“As a matter of law, section 1102 indicates that each case should have a Court-appointed committee. While such language does not preclude the Court from appointing identical committees in related cases, it cannot be said to authorize a single committee under the circumstances of these proceedings.”); In re Proof of the Pudding, Inc., 3 B.R. 645, 649 (Bankr. S.D.N.Y. 1980) (noting that “completely independent committees, devoid of overlapping membership, can better serve the interests of all of the other creditors in closely related cases”). 155 See, e.g., In re Fas Mart Convenience Stores, Inc., 265 B.R. 427, 432 (Bankr. E.D. Va. 2001) (“Members of the committee also have another duty — a fiduciary duty to all creditors represented by the committee.”); In re Firstplus Fin., Inc., 254 B.R. 888, 894 (Bankr. N.D. Tex. 2000) (“In a Chapter 11 case, an Unsecured Creditors’ Committee is appointed by the Office of the United States Trustee and owes a fiduciary duty to act on behalf of all unsecured creditors.”). 156 11 U.S.C. § 1103(c). 157 Id. § 1103(a). 158 See, e.g., Written Statement of Daniel Kamensky on behalf of Managed Funds Association: LSTA Field Hearing Before the ABI Comm’n to Study the Reform of Chapter 11 (Oct. 17, 2012) (“In such cases, the statutory creditors’ committee is not an equal negotiating partner of the debtor, since it represents creditors with a de minimis stake in the future company. In fact, the only avenue of recovery for unsecured creditors in such cases is typically litigation of sometimes dubious causes of action, which can cause the statutory committee to focus unduly on future litigation value. It therefore may not be appropriate for a statutory creditors’ committee to be appointed in these cases; or, at least, limits should be placed on the committee’s role.”) (citations omitted).