To Serve or Not to Serve? That Is the Question!
by Dorman Wood, Dorman Wood Associates Inc., Monument, Colo.
Under the current Bankruptcy Code, a credit executive’s decision of whether or not to serve on an official unsecured creditors’ committee has usually been based on the dollar value of their employer’s claim against the bankrupt customer. Did the dollar value of their claim justify the time and expense of serving on the committee? As a credit executive who has served on more than a dozen such committees, chairing half of them, I can state that little, if any concern has been given to the importance and ability of maintaining the confidentiality of the activities of an unsecured creditors’ committee. In many situations, confidentiality agreements are entered into between the debtor and committee members. In any case, committee members have been fairly certain that they operated under an umbrella of confidentiality provided by §1102 of the current Bankruptcy Code.
With assistance from their counsel, unsecured creditors’ committees have engaged the services of professionals such as CPAs, attorneys, negotiated with trade unions, taxing authorities, initiated adversary preference actions and conducted other activities to preserve the integrity of the bankruptcy estate and to aid in the approval of a plan of reorganization. Their activities, meeting minutes, telecommunications and written correspondence have all enjoyed a reasonable degree of confidentiality.
However, under 11 U.S.C.A. §1102 of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, which becomes effective on Oct. 17, 2005, there is a concern that such confidentiality may become a thing of the past, or at least something that will have to be approached in a much different manner. The applicable revision, new §1102(b)(3), provides:
A committee appointed under subsection (a) shall (A) provide access to information for creditors who (i) hold claims of the kind represented by that committee; and (ii) are not appointed to the committee; (B) solicit and receive comments from creditors described in subparagraph (A); and (C) be subject to a court order that compels any additional report or disclosure to be made to the creditors described in subparagraph (A).
Many bankruptcy attorneys have expressed concern that revised §1102 will not only open the activities of unsecured creditors’ committees to those creditors not seated on the committee, but to the debtor and outside parties as well. Undoubtedly, credit executives are also expressing serious concerns about serving on an unsecured trade creditors’ committee under revised §1102.
It remains to be seen how the courts will interpret revised §1102 in bankruptcies filed after Oct. 17, 2005. Until remedies have been identified and/or precedent set, credit executives choosing to serve on unsecured trade creditors’ committees should seek and follow the advice of legal counsel specializing in commercial bankruptcy.
Editor’s Note
This topic, the revised provisions of the statute governing the appointment and operation of creditors’ committees, §1102 of the Bankruptcy Code, will be the subject of a roundtable discussion at the committee’s meeting at the upcoming ABI Winter Leadership Conference in Indian Wells, Calif., Dec. 1–3, 2005.