Bankruptcy Committees: Strategies to Maximize Distribution to All Creditors

February 10, 2021
Webinar

This CLE webinar discussed how counsel representing committee members and counsel for committees address recurring and new issues. Official committees, most often unsecured creditors committees, remain critical to reigning in secured lenders, and ad hoc committees provide creditor groups that share a common agenda with a streamlined, cost-effective, and unified voice. The panel guided counsel for these groups and their members in maximizing distribution.

Description
Bankruptcy committees are in the news after a member of the unsecured creditors' committee in the Neiman Marcus bankruptcy was arrested for fraud, extortion, and obstruction of justice based on his audacious conduct in the case. Fortunately, such incidents have been rare, and committees remain an important player in reorganizations.

Official committees carry significant clout with the court and keep secured lenders from excluding and marginalizing unsecured creditors. Committees can prevent overreaching and unnecessary "adequate protection" in DIP, and cash collateral orders, undervaluation of assets, the use of independent directors, and can curb self-serving rights offerings. Committees have even developed and won workarounds to the issues created in CML V L.L.C. v. Bax, limiting claims against the debtor's insiders, officers, and directors.

Ad hoc committees can be essential to protecting minority creditor groups' interests and bringing perspective on unusual issues. And all committees are taking an active role in opposing management bonuses and pre-petition cash payouts that do not benefit the estate.

Committees work best when thoughtfully and strategically formed, focused, and directed. Counsel for individual members and the committee's counsel plays a critical role in how well the committee performs and in increasing distribution.

Listen as this experienced panel of attorneys who have represented and litigated on behalf of committee members and committees discussed best strategies for bankruptcy committees and what committees can do for creditors not serving.

Outline

  • Overview of committees, duties, pros and cons, formalities
  • Composition of official committees
  • Solicitation of members by possible committee counsel
  • Potential sources of conflicts
  • Selecting counsel for the committee
  • Strategies for unsecured creditors committees to maximize distribution
  • DIP/cash collateral orders/506(c)/552
  • Pre-petition bonuses and payouts
  • Claims against insiders
  • Ensuring adequate disclosure
  • Rights offering and backstop fees
  • Strategies for ad hoc committees
  • Conflicts
  • Attorney-client privilege
  • Benefits

The panel reviewed these and other key issues:

  • What are the statutory authority and duties for committee members under Section 1102 and 1103 of the Bankruptcy Code?
  • Are there limits to a committee's standing to pursue claims against third parties?
  • On what major legal matters are committees most influential?
  • What plan provisions should the committee be most concerned with?
  • How is committee counsel chosen?
  • How can counsel corral rogue or burdensome members?