If a company that owes you money files for Chapter 11 bankruptcy, you may be chosen to be on a creditors’ committee along with others who are owed money by the company. While participation in a committee can involve a significant amount of time, work and potentially travel, it can give you an opportunity to seek as much repayment as possible as the company reorganizes or is liquidated.
The members of a creditors’ committee for those whose debt is unsecured are chosen by the bankruptcy trustee from creditors with the most money owed to them. However, you’re helping represent those who are owed less.
Committee members have input into what happens to the debtor company
Since secured creditors are paid prior to unsecured creditors, there likely won’t be enough left to pay everyone what they’re owed – at least in the near future. That’s why it’s important to have a say on the committee about what happens to the company and to negotiate with other creditors. The committee can determine whether they’d have a better chance of repayment if the company develops a reorganization plan that allows them to continue doing business and making money.
The creditors’ committee can seek legal, financial, appraisal and other professional guidance. It’s important to note that the bankruptcy trustee has the final decision on all recommendations. Their responsibility is to be as fair as possible to everyone.
If you’re given the opportunity to be on a creditors’ committee in a Chapter 11 case involving one of your debtors, it’s wise to weigh the pros and cons of whether it’s worth the time and manpower required. It may be a good idea to seek some legal guidance of your own to determine what’s best for your business.