What is a creditors’ committee?

If you are a creditor, one thing that might fill you with worry is if a business that owes you money ends up in bankruptcy, such as Chapter 11 bankruptcy. You may worry about whether the debt will be repaid and whether your rights and interests will be protected during the bankruptcy process. These worries may be particularly strong if the debt you are owed isn’t backed by any collateral (known as unsecured debt).

The Chapter 11 bankruptcy process for businesses involves a business restructuring through a debt reorganization plan. The process contains certain safeguards aimed at protecting creditors. One of these is the unsecured creditors’ committee.

Typically, Chapter 11 bankruptcies include the appointment of this sort of committee. The United States Trustee appoints this committee. Which creditors are on this committee varies from case to case. Typically, the unsecured creditors’ committee is made up of the seven creditors who are owed the most in unsecured debt.

What does this committee do during Chapter 11 bankruptcy? It serves several important roles, including:

  • Helping form the reorganization plan.
  • Looking into the business’ operation and the debtor’s conduct.
  • Consulting with the debtor when it comes to matters of case administration.

So, the actions of the creditors’ committee can have very big impacts in Chapter 11 cases, such as impacts on the overall situation of the creditors. So, a creditor may have many questions about such committees when they are owed money by a business that is going through Chapter 11 bankruptcy. Attorneys skilled in creditor representation can help answer these questions and assist creditors in standing up for their interests in Chapter 11 cases.