Chapter I Role of the Committee Generally
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Chapter I Role of the Committee Generally
A. Advocating for Unsecured Creditors as a Fiduciary
The official committee of unsecured creditors plays a vital and multifaceted role in the chapter 11 process. Among other functions, the committee may supervise the debtor's administration of its case, engage in plan negotiations with the debtor, and investigate the assets, liabilities and business affairs of the debtor. The Bankruptcy Code expressly provides that the committee has standing to appear and be heard on any issue in a case.1 In protecting and enforcing its constituents' interests, the committee may initiate contested matters or adversary proceedings, or intervene in the contested matters or adversary proceedings2 brought by other parties.
The committee's overarching duty throughout the bankruptcy case is to protect and promote the interests of holders of general unsecured claims. Accordingly, individual committee members are deemed to owe a fiduciary duty to the particular class of creditors represented by the committee.3
As fiduciaries, committee members owe a duty of undivided loyalty to the committee's constituents.4 "This duty prohibits members of the creditors' committee from using their position to advance their own individual interests."5 Rather, the committee has a duty to act at all times with the goal of maximizing the recovery of the entire represented class.6 Courts have held that committees' fiduciary duties require them, where appropriate, to hire professionals,7 and to maintain the confidentiality of sensitive information.8
Committee members' fiduciary duties run only to the committee's constituents, and not to the debtor or the estate as a whole.9 In fact, committees will often take positions adverse to the debtor when doing so would protect their constituents' interests. As one court explained:
The creditors' committee is not merely a conduit through whom the debtor speaks and negotiates with creditors generally. On the contrary, it is purposely intended to represent the necessarily different interests and concerns of the creditors it represents. It must necessarily be adversarial in a sense, though its relations with the debtor may be supportive and friendly. There is simply no other entity established by the Code to guard those interests. The committee as the sum of its members is not intended to be merely an arbiter but a partisan which will aid, assist, and monitor the debtor pursuant to its own self-interest.10
B. Communication with Unsecured Creditors
1. Duty to Share Information under § 1102(b)(3) of the Bankruptcy Code
Section 1102(b)(3) of the Bankruptcy Code, added in 2005 as part of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), states that a committee shall:
(A) provide access to information for creditors who —
(i) hold claims of the kind represented by that committee; and(B) solicit and receive comments from the creditors described in subparagraph (A).
(ii) are not appointed to the committee; [and]
Neither the Bankruptcy Code nor the legislative history elaborates on these requirements.11
2. Section 1102(b)(3) Orders
Because of § 1102(b)(3)'s lack of specific direction, committees often wish to obtain the bankruptcy court's approval of their proposed information sharing protocol. Typically, shortly after formation, a committee will draft a § 1102(b)(3) protocol regarding the dissemination of information and solicitation of comments, and will file a motion seeking entry of an order approving the protocol. The proposed protocol will provide that the committee will be deemed to be in compliance with § 1102(b)(3), so long as it adheres to the protocol. Committee information protocols will vary depending on the particularities of each bankruptcy case, including the size of the unsecured creditor body, the complexity of the case, and the volume of information that the committee may wish to share. Important features of § 1102(b)(3) protocols typically include a procedure for sharing information with, and soliciting comments from, the committee's constituents, and a procedure governing confidential, privileged or otherwise sensitive information.
3. The Refco Model § 1102(b)(3) Protocol
Shortly following the enactment of BAPCPA, the U.S. Bankruptcy Court for the Southern District of New York issued a published opinion in the Refco bankruptcy cases setting forth a detailed protocol for the committee's provision of information and solicitation of comments pursuant to § 1102(b)(3). The Refco protocol has since become a widely used model governing committees' performance of their § 1102(b) (3) obligations.12
Most committee information protocols are modeled on, and share at least some features with, the original Refco protocol, particularly the features concerning the protection of sensitive information. The section below will describe the important features of the Refco protocol and cover the important features of the protocols typically approved in large chapter 11 cases.
a. Basic Dissemination of Information
The Refco protocol first answered perhaps the most basic question engendered by § 1102(b)(3): "How should the committee provide 'access to information'"? The Refco court's order required the committee to employ three methods for disseminating information: (1) set up a committee website; (2) distribute regular email updates to creditors who register for such; and (3) provide a telephone number and email address for creditors to submit questions and comments. The order listed, without limitation, certain items that the website should contain:
1. general information concerning the bankruptcy case, including dockets, access to docket filings, and general information concerning significant parties in the cases;
2. monthly committee written reports summarizing recent proceedings, events and public financial information;
3. highlights of significant events in the cases;
4. a calendar with upcoming significant events in the cases;
5. access to the claims docket and when it was established by the debtors or any claims agent in the cases;
6. a general overview of the chapter 11 process;
7. press releases (if any) issued by the committee and/or the debtors;
8. a non-public registration form for creditors to receive real-time case updates via electronic mail;
9. a non-public form to submit creditor questions, comments and requests for access to information;
10. responses to creditor questions, comments and requests for access to information, provided that the committee may privately provide such responses in the exercise of its reasonable discretion, including in light of the nature of the information request and the creditor's agreement to appropriate confidentiality and trading constraints;
11. answers to frequently asked questions; and
12. links to other relevant websites.13
b. Privileged and Confidential Information of the Debtor or the Committee
Next, the Refco protocol addressed the issue of privileged, confidential or other sensitive information. In an effort to alleviate the committee's principal concern, the court's order stated that the committee was not required to disseminate to any entity any confidential, proprietary or other non-public information concerning the debtors or the committee, or any information such that dissemination would waive any privilege.
The Refco protocol provided that if the committee, either on its own or in response to a creditor request for information, decided that it should disclose any confidential information of the debtors, the committee would first submit a written "information demand" to the debtors' counsel stating that the committee would disclose such information unless the debtors objected within 15 days. If the debtors so objected, then the parties would schedule a hearing with the court to resolve the objection.
c. Creditor Information Requests
The Refco protocol set out a procedure governing creditors' requests for information. If a creditor submitted a written request for information, the committee would respond within 20 days, either by providing the information or by explaining why it would not do so. If the committee declined to provide the information, the requesting creditor was to first meet with a representative of the committee in a good-faith effort to resolve the request. Then, if still unsatisfied, the requesting creditor could file a motion with the court seeking to compel disclosure.
d. Confidential Information of Third Parties
The Refco protocol set out a procedure governing the committee's disclosure of confidential information of a third party that was parallel to the procedure governing the committee's disclosure of confidential information of the debtors.
e. Exculpation
Finally, the Refco protocol contained an exculpation clause stating that neither the debtors nor the committee would incur any liability to any entity as a result of having followed the court-approved protocol. However, the exculpation clause went on to state that exculpation would not affect liability for dissemination of information to the extent that such dissemination would constitute a breach of fiduciary duty, gross negligence or willful misconduct, including without limitation, fraud and criminal misconduct, or the breach of any confidentiality agreement or order.
f. Committee Websites
A central feature of the Refco protocol was the committee's website, which was to be used for disseminating all manner of information regarding the bankruptcy cases. Orders entered pursuant to § 1102(b)(3) often require the committee to establish a website providing information similar to what was provided on the Refco committee's site.14 In contrast, some § 1102(b)(3) orders have authorized, but not required, the committee to establish a website.15
In a given bankruptcy case, the need to establish a committee website will depend on the particular...
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