Improve the Odds of Getting Paid - Form a Creditors' Committee
The president of a tire company called me to discuss what to do as a result of a customer going into Chapter 11. He asked what could he do that isn’t going to require him to come up with any cash, is not going to take much time, and has the potential to be very effective?
I responded that participation on an official creditors committee might make the difference in a satisfactory resolution with the customer that filed chapter 11. While there are no guarantees as to the outcome of a case, often I have been able to use the power of a creditors committee to significantly enhance the treatment of unsecured creditors.
An active creditors committee has a powerful voice in a Chapter 11 case and the ear of the court. Bankruptcy Judges want to hear from the creditors’ committee on the many issues in a Chapter 11 case. Federal law provides for a seat at the negotiating table for committees. A committee’s activities include oversight of the debtor, and scrutinizing debtor’s affairs, and evaluation of the fairness and feasibility of a debtor’s actions. The bottom line is a well-run pro-active committee can create value for unsecured creditors.
An attractive aspect of official committees is that they are usually structured so that there is no direct charge to the members for the cost of professionals that advise committees. Thus a mechanism is in place to level the playing field for creditors (or sometimes shareholders) in the negotiations that take place in formulating how a debtor will be restructured or liquidated.
And the absence of a committee can result in the creditors getting the short end of the stick! Don’t assume that someone else is going to be looking out for creditors; it is the responsibility of the creditors to lookout for themselves – make use of this powerful tool – an Official Creditors Committee.
I’ll write more on this soon, but for now see that a committee gets formed. Call me if you need help.