Founding Attorney
Creditors’ committees play a pivotal role in the Chapter 11 bankruptcy process, acting as the collective voice of unsecured creditors. These committees are tasked with representing the interests of various stakeholders, such as suppliers, bondholders, and customers, in complex bankruptcy proceedings. They work to ensure that the reorganization plan proposed by the debtor is fair and equitable to all parties involved.
A Massachusetts Chapter 11 bankruptcy attorney can help you understand if Chapter 11 is the right move for your business.
Understanding the Role of Creditors’ Committees in Chapter 11 Bankruptcy, and Its Formation
The formation of a creditors’ committee is an important distinction between Chapter 11 and other ways to file bankruptcy. The committee is governed by rules. For instance, the committee members are the largest unsecured claims. By law, a creditors’ committee may only consist of two unsecured debt holders, or as many as seven can serve. The committee protects the interests of unsecured creditors.
Powers and Duties: An In-Depth Look into a Creditors’ Committee’s Influence in Chapter 11
The debtor in a Chapter 11 filing is called a Debtor in Possession, or DIP. Sometimes, the DIP acts responsibly to reorganize the business so that the debts will be repaid. Other times, there is a lack of good business judgment or even some undue influence by a third party.
The Bankruptcy Code has mechanisms in place to protect those with an interest in the bankruptcy’s outcome. There are procedures for:
- Appointing a third-party examiner to investigate what’s going on
- Ending the DIP’s rights regarding getting approval for the reorganization plan they have devised
- If there is fraud happening, or gross mismanagement or incompetence the DIP may lose the ability to be the trustee, and a trustee may be appointed to manage getting the Chapter 11 plan confirmed
These actions are important for ensuring the repaying of the debts, or if necessary, ordering liquidation of the company. Additionally, the Bankruptcy Code allows for the hiring of an attorney to assist the committee.
Should the Business Go On?
In some cases, the best plan for satisfying all the creditors is to liquidate the business. For instance, if a buyer is willing to buy the business as a “going concern” then liquidation may be the best option. Whereas under Chapter 7 the business stops and ceases to exist, Chapter 11 liquidation allows it to continue.
Facing Chapter 11 Bankruptcy? Reach out to a MA Bankruptcy Attorney Today
Filing a bankruptcy under any circumstances is stressful and you want an experienced and skilled attorney by your side. We can help you weigh all your options and choose the one that feels right for you. Contact us today to schedule an appointment to discuss your options.