Chapter 11: Creditors' Committee

Web posted and Copyright © 1/12/98, American Bankruptcy Institute.

The following abstract summarizes the text of submissions made to the National Bankruptcy Review Commission. The abstract is organized by NBRC working group and topic.

The Final Report of the NBRC can be viewed on-line. To obtain a copy of any document shown below, contact the Center for Legislative Archives, Room 205, National Archives Building, Washington, D.C. 20408. The telephone number is 202/501-5350. Mr. R. Michael McReynolds, Deputy Director, will be able to assist with specific inquiries. (The NBRC documents will be housed at this location until June, 1999. Thereafter, the records will be transferred to the Center's archives in College Park, MD.)
 

ID Name Group Other Code
Sec
Cross
Ref
Problem Referenced Proposed Solutions
NBRC-0178 Gary White, on behalf of the Natl. Assoc. of Credit Management Chair, Government Affairs Comm., Natl. Assoc. of Credit Management


Supports the working group's proposal regarding court review of creditor committee appointments. This proposal will help develop sufficient flexibility for the court to impose a system of checks and balances between debtors and creditors. Supports the working group's proposal on court review of creditor committee appointments.
NBRC-0223 Frank R. Kennedy Professor, Michigan Law School; former Executive Director, Commission on the Bankruptcy Laws of the United States (1973) Cover letter discussing various areas of concern

Author provides a list of 30 "Topics for Consideration by Commission on Bankruptcy Laws." The recommended topic relating to Creditors' Committees is: Creditors' and equity holders' committees. None.
NBRC-0286 Leonard Opperman Attorney
1161
Code makes no provision for appointment of a creditors' committee in railroad oranizations cases. 11 U.S.C. § 1161 et seq. Protection of the public interest is left soley to the court appointed trustee and the bankruptcy court. The court appointed trustee has a serious conflict of interest since he or she derives economic benefit from continuation of the case. As the U.S. Trustee's Office cannot sufficiently monitor the performance of the trustee in railroad reorganization cases, § 1161 should be amended to provide for a creditors' commitee.
NBRC-0303 Commercial Law League of America Commercial Law League of America (CLLA)


The Commerical Law League of America believes that the following issue should be considered by the NBRC: Should the court's power to change the composition of creditor's committees and review the decisions of the U.S. Trustee be restored The CLLA believes that this issue should receive top priority (no additional details are provided).
NBRC-0320 Robert M. Zinman, on behalf of the Bankruptcy Institute American Bankruptcy Institute ("ABI") Numerous position papers, memoranda and research material

None. The court should have the ultimate authority to change the composition of the creditors' committee and to review the decisions of the U.S. Trustee in connection with committee matters (no additional details provided).
NBRC-0360 Daniel J. Bussel Author, UCLA Law Review article


In his UCLA Law Review article entitled "Coalition Building Through Bankruptcy Creditors' Committees," the author states that the legal framework governing the creditors' committee has failed to keep up with the changes in bankruptcy law. The committee, however, can be an effective device for building the consensus necessary to the successful resolution of reorganization of cases. The author concludes that the next step in the evolution of the creditors' committee is "to embrace the goal of consensus building, and, with that goal in mind, continue to evolve the institution so it can become even more effective."
NBRC-0386 National Association of Credit Management National Association of Credit Management ("NACM")


In this statement entitled "Issues Involving Governmental Agencies and Bankruptcy," the NACM expresses the following conerns about government agencies in the bankruptcy process: the presence of government agencies on creditors' committees could inhibit or frustrate the work of the committees because the government's agenda is often different from that of other unsecured creditors; also, government agecies are already represented adequately by attorneys in the bankruptcy process. Code should be amended to prevent government agencies from sitting as members of creditors' committees.
NBRC-0450 Kevyn D. Orr Acting Director, U.S. Dept. of Justice, Executive Office for U.S. Trustees
1102
Author is sending comments on behalf of the United States Trustee Program (USTP) to the Chapter 11 Working Group's revised position paper dated October 9, 1996 on specific proposed amendments to 11 U.S.C. §1102 concerning de novo review of creditiors' committee appointments. While being less concerned about this proposal than the previous proposal of October 9, they nevertheless suggest additional revisions to Section 1102 which they believe will help to better insure that effective and representative creditors' committees are appointed in Chapter 11 cases. 1) Parties should initially direct their requests for alterations in committee structure or membership to the United States Trustee; 2) a "change in membership of a committee" as contemplated by the working group proposal can include a decision to reconstitute, modify or disband a committee; and, 3) the United States Trustee, rather than the Bankruptcy Judge, will make new appointments to committees following any court ordered adjustment in committee structure or membership. The document goes on to give specific amendment language, and a lengthy discussion of the implications.
NBRC-0492 Philip J. Brandl President, National Housewares Manufacturers Association Position Statement on Bankruptcy Law Reform, Housewares Manufacturers Coalition

"Our members are also concerned about their ability to be heard in bankruptcy cases." "Even if one or two trade creditors are on [the creditors'] committee, those creditros are typically larger organizations that may well not represent the interests and concerns of smaller manufacturers." "We urge the Commission to give meaningful attention to means of increasing the representation of smaller manufacturers in retail bankruptcies." "One possibility would be to permit groups of smaller creditors to appoint a nonprofit trade association or other representative to represent them on a creditors' committee, rather than simply having the largest creditors do so.
NBRC-0858 Ed Goldwasser, et al. Small World Toys


"Unsecured creditors need to be better represented on the Creditor's Committee and be more involved in the Bankruptcy proceedings." See above.
NBRC-1028 Jim Gulechyn National Credit Manager, General Mills, Inc.


"Currently the Code is structured to require the U.S. Trustee in most cases to appoint a creditor committee consisting of the holders of the seven largest claims of the kinds represented by the committee. In many cases involving significant unsecured debt, most of the seven largest claims will be held by banks, insurance companies and bondholders ("institutional creditors"). As a result, suppliers of goods and services ("trade creditors") often have no effective voice onthe committee and in the process and outcome of the case." "One solution to this problem is to revise §1102(b) of the Code to provide that, if both trade debt and non-trade debt are represented by the same committee, a majority of the committee should ordinarily be composed of holders of trade debt. The word 'ordinary' is used because such a composition might not be practical in every case."
NBRC-1028 Jim Gulechyn National Credit Manager, General Mills, Inc.
123
In many cases, the creditors' committee is disbanded on the effective date of the plan. After that, there is no one to protect creditors, no one to monitor what the debtor in possession is doing. "Section 123(a) could be amended to require that the creditors' committee continue in existence until the plan is fully performed."
NBRC-1028 Jim Gulechyn National Credit Manager, General Mills, Inc.


In many cases an informal committee is formed by the trade creditors to deal with the debtor before bankruptcy is filed. If a bankruptcy is filed, there should be some way to ensure some continuity between this informal committee and the official committee appointed by the U.S. Trustee. "Section 1102(b)(1) could be amended to prpovide tht, if an informal committee has been created before the filing of the petition, the official committee should ordinarily be composed of at least three members of such pre-petition committee, plus the four largest representative creditors."
NBRC-1034 Harry W. Greenfield and Alan Gordon Chair, Bankruptcy & Insolvency Section, and Chair, Chapter 11 Subcommittee, respectively, Commercial Law League of America (CLLA) Comments and suggestions regarding reforms to preference recovery; Comments and suggestions regarding Employee Participation in Bankruptcy Cases; Proposal on Section 547(c)(2) Ordinary Course of Business

CLLA does not support Proposal Number 15 to the extent that it encourages the appointment of employee creditors' committees. This is unnecessary because courts already have the authority to create and appoint additional committees. CLLA believes that Proposal Number 15 should be changed to delete its reference to encouraging the appointment of employee creditors' committees.
NBRC-1069 T.C. Walthour Director, Corporate Credit, Dean Foods


Author addresses three areas of concern with regard to creditors' committees: 1) Trade Representation - the seven largest claims will usually be held by institutional lenders, which have different interests than trade creditors, who are not represented; 2) Post-confirmation Committee - this is necessary to monitor the debtor's actions and insure compliance with the plan; 3) Pre-petition Committee - informal trade creditor committees formed to work with the debtor before bankruptcy is filed should be involved in the creditors' committee. 1) revise §1102(b) of the Code to provide that, if both trade debt and non-trade debt are represented by the same committee, a majority of the committee should ordinarily be composed of holders of trade debt; 2) Section 1123(a) could be amended to require that the creditors' committee continue in existence until the plan is fully performed; 3) Section 1102(b)(1) could be amended to provide that, if aninformal committee has been created before the filing of the petition, the official committee should ordinarily be composed of at least three members of such pre-petition committee, plus the four largest representative creditors.
NBRC-1175 Robert A. Colton Chair, Business Law Section of the Florida Bar
1102
  "The Section supports the Commission's proposal that section 1102 of the Bankruptcy Code be amended to allow judicial review of creditors' committee appointments by the United States trustee."