What in the World is an Unsecured Creditors’ Committee?

What in the World is an Unsecured Creditors’ Committee?

By John A. Polinko, Esq.

Consider the following: one of your largest customers has reached its financial breaking point and determined that filing for chapter 11 bankruptcy protection is the last option available to regain its footing and reorganize (or sell) its business. Although this may be beneficial for the company — now a “debtor” in bankruptcy — what options are available to you, one of the debtor’s creditors, and potentially one of the largest?

One aspect of chapter 11 bankruptcy is the formation of a general unsecured creditors’ committee. This committee, appointed under the Bankruptcy Code, will represent the interests of all unsecured creditors of the debtor during the chapter 11 case. Although all unsecured creditors are potential members of the committee, members are typically drawn from the debtor’s top 20 largest unsecured creditors. Thus, one potential option available may be to sit on the committee.

Committees are vital to the chapter 11 bankruptcy process. The committee is authorized to retain legal counsel to assist in monitoring the debtor and its reorganization (or sale) process (the cost of which is borne by the debtor’s estate and not the committee members). But the committee can also flex its considerable “muscle”, when necessary, to ensure the debtor’s actions are in the best interests of the entirety of the debtor’s bankruptcy estate. The committee is a voice and a presence that can provide aid and assistance, but also challenge and contest the debtor.

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