A typical Chapter 11 bankruptcy proceeding involves a great number of creditors who, in many cases, have similar concerns and positions. Recognizing that it is not practical for every creditor to participate in every aspect of the case, Congress decided to establish a representative system for treatment of claims that fall into the same general classification. A Seattle bankruptcy attorney can guide you through your case.
In order to facilitate this system, the Bankruptcy Code provides for a committee of unsecured creditors to be appointed in every Chapter 11 case and further provides authority for additional committees to be appointed as needed for the representation of the various creditor groups.
Once a committee has been formally appointed by the court, it has the right to be represented by a Seattle attorney and other professionals as necessary. The unique twist to this arrangement is that the debtor is required to pay for the attorney and other professionals that are doing work on behalf of the committee.
In order to serve on a committee, a creditor needs to hold a claim against the debtor which arose at the time of or before, the commencement of the bankruptcy case. The term "claim" is very broadly defined under the Bankruptcy Code to include virtually any right to payment whether liquidated, fixed, contingent or whether arising under legal, equitable, or other principles. Generally, it is not difficult for a creditor to be appointed to a committee if the creditor has the appropriate class of claim.
One of the main benefits of forming a committee is that the members have the right to be heard on any issue concerning the bankruptcy case. This right can be exercised through the Seattle bankruptcy attorney hired to represent the committee or the chairman appointed to head the group.
The powers and duties of the committee include assisting the debtor in the administration of the case, investigation of matters pertinent to the case, and participation in the reorganization plan process. It is also able to make comments on the repayment plans proposed by the debtor.
In many instances, the debtor that is in the Chapter 11 proceeding is a legal corporation. Often times, the debtor corporation as a legal entity has certain claims against its principals and directors who are generally not inclined to share information about their wrong-doings. Because this conflict exists, it has been decided that the committee has the right to bring the action on behalf of the Chapter 11 debtor if the corporate entity refuses to do so. This right granted to the committee allows the claims against the principals or directors to be diligently pursued by an objective third party.
Examples of the type of cases which the committee might pursue would be to recover preferential transfers to insiders of the corporate debtor or to set aside fraudulent conveyances. A Seattle bankruptcy attorney can help guide this process.
Because of the unique role which the committee serves, it is important that the committee itself not be subject to conflicting interests. The committee members are acting as a fiduciary for the class as a whole, and they shouldn't use the group to further the interests of an individual member at the expense of other creditors.
An example of this would be the appointment of one of the debtor's competitors to the committee. This type of appointment could be challenged because of the potential that the competitor would obtain confidential information which would be detrimental to the debtor and in turn to the creditors.
The involvement of a Seattle bankruptcy attorney in representing the interest of unsecured creditors greatly enhances the likelihood of bigger recovery for the creditors of the bankruptcy estate. Although the goal of the bankruptcy process is simple—to maximize the return to creditors—the application of the Bankruptcy Code and the ability to recognize issues which arise in the case can be very complex and confusing. In past cases the absence of a committee and a Seattle bankruptcy attorney has allowed the Chapter 11 debtor a virtual free reign in the control and outcome of the case.
If you find yourself in the position of being a creditor of a debtor who has chosen a Chapter 11 bankruptcy petition to forestall payment of debts, consider requesting and participating in a creditors committee made up of others like yourself. Not only can the professionals you hire get paid from the assets of the debtor, you most likely will get more effective representation from your Seattle attorney.