1. Washington D.C. Creditor & Creditors' Committees: Legal Framework and Statutory Basis
In Washington D.C., creditor committees are governed primarily by 11 U.S.C. § 1102–1103 of the Bankruptcy Code. These provisions permit the United States Trustee to appoint an official committee of unsecured creditors in Chapter 11 cases.
Washington D.C. Creditor & Creditors' Committees: Statutory Functions and Fiduciary Duty
Once formed, the committee holds fiduciary obligations to all unsecured creditors. Its responsibilities include reviewing the debtor's financial affairs, negotiating the reorganization plan, and even proposing an alternative plan if necessary.
2. Washington D.C. Creditor & Creditors' Committees: Formation, Composition, and Eligibility
The U.S. Trustee appoints committee members from among the largest and most representative unsecured creditors who are willing to serve. Typically, committees consist of 3 to 7 members but may vary depending on case complexity.
Washington D.C. Creditor & Creditors' Committees: Conflicts and Disqualification
Creditors with conflicting interests, such as insiders or those holding secured positions, may be excluded. Courts may also remove members for misconduct or breach of fiduciary duty.
3. Washington D.C. Creditor & Creditors' Committees: Powers and Influence in Reorganization
Committees have broad authority, including hiring attorneys and financial advisors at the debtor’s expense. They can also file motions, examine witnesses, and challenge debtor proposals under Rule 2004 and 9014 of the Federal Bankruptcy Rules.
Washington D.C. Creditor & Creditors' Committees: Role in Plan Confirmation
The committee may negotiate directly with the debtor to improve the terms of a proposed reorganization plan. Their recommendation can significantly influence other creditors’ voting behavior.
4. Washington D.C. Creditor & Creditors' Committees: Compensation and Expense Reimbursement
Committee members are not paid fees but are entitled to reimbursement for actual expenses incurred in committee service. Legal and professional costs incurred by the committee are typically borne by the debtor’s estate.
Washington D.C. Creditor & Creditors' Committees: Judicial Oversight and Accountability
Courts supervise the committee’s conduct and may disband or reconstitute it if it fails in its fiduciary duties. Transparency and fairness in representation are paramount.
5. Washington D.C. Creditor & Creditors' Committees: Special Committees and Ad Hoc Groups
In complex cases, courts may recognize ad hoc committees formed by specific groups of creditors (e.g., bondholders or trade creditors). While unofficial, these groups often negotiate alongside the official committee.
Washington D.C. Creditor & Creditors' Committees: Strategic Considerations for Creditors
For creditors, joining a committee can enhance influence but also comes with exposure to legal duties and discovery requests. A strategic assessment is crucial before accepting a committee role.
6. Washington D.C. Creditor & Creditors' Committees: Final Remarks on Rights and Remedies
While committees do not possess veto rights over a plan, their opposition can trigger stricter judicial scrutiny. They serve as a vital balance between debtors’ ambitions and creditors’ recoveries.
17 Jul, 2025
