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The role of the creditors' committee in a Chapter 11 bankruptcy

Most Kentucky businesses contemplating filing a petition for a Chapter 11 bankruptcy understand that control of the business will be subjected to the control of the court. But few understand exactly how this happens. This blog has previously commented on the role of the bankruptcy trustee in a Chapter 11 proceeding. This post will examine the role of the creditors' committee.

The general purpose of the creditors' committee is to cooperate with the trustee in overseeing the conduct of the debtor's business (or businesses). The trustee appoints the committee, and it usually consists of those creditors who hold the seven largest unsecured claims. After organizing itself, the committee consults with the debtor in possession about administration of the case and operation of the business while the bankruptcy proceeding is underway. The committee can provide effective oversight of the conduct of the debtor and conduct of the business. The committee must also meet with the trustee to review the same topics.

One of the committee's most important roles is working with the debtor to prepare a plan for reorganization and to provide access to information about the debtor and the plan of reorganization to creditors who do not serve on the committee. The committee also has the power to investigate the operation the business, its financial history and the conduct of the owners of the business. The creditors' committee can, with the court's approval hire attorneys, accountants and other professionals to assist it in the conduct of its duties. The creditors' committee protects the interests of all unsecured creditors by ensuring proper operation of the business during the bankruptcy proceeding.

An unsecured creditor of a debtor in possession may wish to obtain more information about the operation of the creditors' committee, and its powers and duties, by consulting an experienced bankruptcy attorney.

Source: United States Courts, "Chapter 11 - Bankruptcy Basics," accessed on June 2, 2017

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