holding large claims should determine
if serving makes sense for them.
Committee members gain access to a
debtor’s confidential information and
receive cash flow forecasts, business
plans, and more. They learn more about
the debtor’s reorganization or liquidation
goals than they would if they didn’t serve.
Yet committee members also must
also be mindful that they serve as
fiduciaries for all unsecured creditors.
The primary goal of unsecured
creditors is to maximize recoveries
on their claims, but issues may arise
in which an individual creditor’s own
interests diverge from those of its fellow
unsecured creditors. For instance,
bondholders or governmental agencies
might pressure a committee to pursue
goals on certain issues that differ from
what the trade would want. As fiduciaries
to all creditors, committee members
must deal with those tensions.
If a debtor has secured debt, the
creditors’ committee investigates
whether the security interests were
properly perfected and related matters
concerning the validity of the secured
creditor’s priority claims. Trade creditors
that serve on a creditors’ committee
review the results of an investigation
and help decide if litigation should be
brought against the secured creditor.
Retailers that file for bankruptcy might
also seek court permission to pay their
critical vendors amounts owed pre-bankruptcy. Debtors identify in their
moving papers, or subsequent to the
motion being approved, which creditors
they believe are critical to their business.
The motion includes a total amount that
the debtor wishes to pay those creditors.
A proposed order spells out the terms
these critical vendors must agree to
before they will be paid prepetition
amounts they are owed. For instance, the
proposed order might require vendors
to keep supplying a debtor according
to certain specified business terms.
Creditors identified as critical that agree
to the proposed supply terms are eligible
to receive amounts owed prepetition for
which they otherwise might be paid at
just a fraction on the dollar as unsecured
claims in the bankruptcy case.
Trade creditors must also be sure to
file timely proofs of claim. Typically in
Chapter 11 cases, a debtor files a motion
to set a filing deadline. Claims should
identify amounts owed prepetition and
include supporting documentation. In
addition, a separate deadline is set for
creditors to file administrative expense
claims—claims for goods and services
provided to a retailer post-petition.
Administrative expense charges are the
actual and necessary costs and expenses
a debtor incurs to preserve its bankruptcy
estate through Chapter 11. Creditors with
valid administrative expense claims
are paid in a bankruptcy case before
distributions are made to unsecured
creditors on prepetition amounts owed.
Certain trade creditors have contracts
with debtors that qualify as executory
contracts, which means that both the
creditor and debtor still owe performance
to one another, such that failure by either
to perform would constitute a material
breach of the contract. When a contract
is executory, a debtor has the option to
assume it, reject it, or assume and assign
it to another party. Bankruptcy Code §365.
A debtor that assumes or assigns a
contract (or the assignee) then must pay
the creditor amounts owed prepetition
and give adequate assurance that the
debtor or assignee can continue to
perform the contract. Bankruptcy Code
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