CHAPTER 11 ADMINISTRATION:
ADMINISTRATION OF CHAPTER 11 CASE
Creditors' Committees: Shortly after the order for relief, the United States trustee appoints a committee of unsecured creditors, usually consisting of those willing persons holding the seven largest unsecured claims against the debtor.
a. List of creditors: The debtor is required to file a list of the creditors holding the twenty largest unsecured claims, excluding insiders. In a voluntary case, the list must be filed with the petition; in an involuntary case, it must be filed within two days after the entry of the order for relief.
b. Membership on creditors' committee: Membership on a creditors' committee is not limited to individuals; other persons holding large unsecured claims may be appointed
(1) Pre-petition committee
A creditors' committee may consist of the members of a committee created before the petition was filed, if the members were selected fairly and exemplify the types of claims to be represented.
c. Additional committees:
Additional committees of creditors or equity security holders may be appointed by the United States trustee, either in his own discretion, or as ordered by the court at the request of a party in interest lo assure adequate representation.
(1) Equity security holders:
If a committee of equity security holders is appointed, it usually will consist of the seven largest holders (in amount) of the type of equity securities represented by the committee. Note that the debtor must file a list of equity security holders of each class within fifteen days after the entry of the order for relief.
Powers and duties:
A creditors' committee or an equity security holders' committee may engage in any of the following activities during a Chapter 11 case
(1) Consultation with the debtor in possession or with the trustee if one has been appointed
(2) Investigation of the debtor's conduct, nuances, and business operations, the propriety of continuing the debtor's business
(3) Participation in the preparation of a plan of reorganization
(4) committee's judgment or conclusions concerning any plan formulated
(5) Collection and Wing of acceptances or rejections of a plan
(6) When appropriate, requesting the appointment of a trustee or an examiner in the case and
(7) Rendering other services for the benefit of the creditors or equity security holders represented by the committee
Employment of attorneys or accountants: A creditors' committee or an equity security holders' committee may hire attorneys, accountants, or other professionals if such employment is authorized at a scheduled meeting attended by a majority of the committee members and if court approval is obtained.
Limitation—no adverse interest: An attorney or an accountant hired by a creditors' committee or an equity security holders' committee is prohibited from representing, during the period of her employment, any entity possessing an adverse interest. However, the representation of a creditor of the same class as the committee represents is not automatically deemed representation of an adverse interest.
(2) Prior approval: It is important that a lawyer or an accountant employed by a creditors' committee or an equity security holders' committee make certain that court approval is obtained before rendering services, since a retroactive order approving employment generally is granted only in extraordinary circumstances.
Debtor in Possession: Unless a trustee is appointed in the case (see below), the debtor remains in possession of the property of the estate and continues to operate the business unless the court orders otherwise. The debtor in possession has all of the rights, powers, and duties of a trustee, except the right to compensation and the duty to investigate the debtor
a. Business judgment rule: In operating the business, the debtor in possession has the authority to make reasonable business judgments concerning the ordinary affairs of the debtor, and generally (he court will not disturb these decisions absent "allegations of, and a real potential for, abuse by corporate insiders.
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