We hope that you found the previous U.S. Bankruptcy Law Q&A Series helpful. This Series Five will address questions relating to the role of official unsecured creditors committees in bankruptcy and considerations of whether to join such a committee.
The UCC is entitled to its own advisors, including counsel, and the related professional fees and other costs are borne by the bankruptcy estate and not the individual members of the UCC. While the costs of the UCC’s advisors are paid by the bankruptcy estate, the UCC is not otherwise entitled to any compensation for its work in the case. Individual members may wish to retain their own counsel to assist them in their role on the UCC, and the cost for such individual counsel is borne by the individual committee member.
Q2: Should I join the UCC?
Serving on the UCC requires some time commitment. The UCC and its advisors typically convene about once a week during periods of significant activity, and less often other times, until a plan is confirmed. As noted above, individual UCC members often retain their own counsel to assist and advise in connection with UCC obligations (e.g. participate in UCC meetings), in addition to representing the member’s personal interests. Regardless of whether a member of the UCC acts on its own or through counsel, each member of the UCC owes a fiduciary duty to all unsecured creditors and must act for the benefit of all unsecured creditors. This means that members of the UCC cannot act solely in their own interests. Being a member of the UCC will also often involve receiving and reviewing confidential information about the debtor that must be kept confidential.
Q3: What role does the U.S. Trustee play with respect to the committee and in a Chapter 11 case generally?
The U.S. Trustee is often referred to as the “bankruptcy watchdog” and acts to ensure everyone plays by the rules – whether that be debtors, creditors, or other parties in interest. During the Chapter 11 case, the U.S. Trustee will actively monitor the case, with particular attention to the retention and payment of the debtor’s professionals, compensation of debtor’s management, and proposed plans of reorganization and whether they provide for releases for non-debtors.
Q4: Can multiple creditors work together and retain the same counsel?
Yes, so long as there is sufficient disclosure to and informed consent by all creditors retaining the same counsel. Indeed, large Chapter 11 cases often feature a variety of ad hoc committees of similarly situated creditors and interest holders, in addition to the formally appointed UCC, which act in the interests of their respective groups. This can be an effective way for creditors to increase their leverage while keeping costs down. However, informal groups of creditors do not have the same powers and advantages as the UCC and, importantly, will not be entitled to have their costs and expenses paid by the bankruptcy estate.
Please keep an eye out for Series Six which will address issues relating to the plan process, including the disclosure and solicitation process and what happens if a plan is or is not confirmed.
Please scan our barcode below if you wish to receive further articles on this topic.
Dorsey & Whitney is a U.S. law firm with 107 years of history and 19 offices in the U.S., Canada, Europe and Asia, including Beijing, Shanghai and Hong Kong. As an AMLAW 100 firm providing full services to business organizations in a wide range of industries, Dorsey is recognized as a “Leading Firm” by Chambers USA and is ranked in U.S. News Best Law Firms.
Dorsey & Whitney Bankruptcy Team for Foreign Suppliers