When a company files a Chapter 11 bankruptcy petition requesting bankruptcy protection from its creditors and seeking to reorganize the company, the various secured and unsecured creditors of the business often form a creditors’ committee. The creditors’ committee participates in the company’s bankruptcy case by reviewing the company’s books to determine if the company is viable and to make comments on the company’s plan for reorganization.

The creditors’ committee plays a significant role in the bankruptcy process.  It should be appointed as soon as practicable after the case is filed.  The creditors appointed to serve on the committee by the bankruptcy trustee are typically the seven unsecured creditors who hold the largest claims, although composition of the committee may vary.  The creditors’ committee works with the debtor, investigates the debtor business, and assists in developing the reorganization plan.  The purpose of the committee is to protect the interests of the creditors, including those creditors who do not serve on the committee.  The committee has wide latitude in determining how they will operate, with many committees choosing to draft bylaws to govern their operation.  It will seek relevant information from the debtor business, and if the business fails to cooperate, seek court orders to ensure compliance.  The committee will assess whether the business should be liquidated in order to repay creditors, or whether it is feasible for operations to continue under a restructuring plan. 

Creditors serving on these committees may not possess all of the requisite knowledge of business or bankruptcy laws necessary to make informed decisions.  For this reason, creditors’ committees retain legal counsel to assist them in their duties.  Counsel will negotiate on the committee’s behalf, file the necessary pleadings, and make court appearances.  The committee may also seek to employ other necessary professionals such as accountants or appraisers. 

Dworken & Bernstein has provided counsel to creditors’ committees in the bankruptcy process. Our attorneys help the creditors’ committees navigate the often complex and confusing Bankruptcy Code, helping the creditors to maximize their recovery from the bankrupt company.

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