Creditors are well within their rights to establish a creditors’ committee during an insolvency process to obtain firmer control over the situation. A committee consists of up to five creditors who will attend meetings between themselves and the officeholder to the effect of forming a strategy that best serves the interests of their creditor class. The regularity of these meetings will be decided by the office holder and committee members during the first meeting.
The responsibility of a committee of creditors involves acting as a liaison between creditors, the debtor and the court when devising a plan for reorganisation. They will also be expected to be well informed on the past and present business operations of the debtor in order to be in a suitable position for formulating a strategy with a view to best assisting the creditor class they represent.
There are numerous benefits to forming a committee of creditors, including:
Ensure Voices Are Heard
As part of a committee of creditors, your voice will be one of the foremost heard among other creditors for the company. The bankruptcy court will often pay very close attention to the interests of the creditors’ committee, especially those of unsecured creditors who often stand to lose out next to secured and preferential creditors, who have certain rights during an insolvency process that unsecured creditors do not.
Network With Peers
Being part of a committee of creditors presents a rare opportunity for creditors to interact closely with one another in a problem-solving capacity. There are opportunities to get a look at the operations of others in the same industry, as well as maintain or foster new relationships with other members. Having worked closely with each other, members of a creditors’s committee could very well set up some favourable business opportunities amongst themselves and with the debtor in the wake of a successful reorganisation.
Greater Insight Into The Insolvency Process
As an individual, a creditor has very little control over an insolvency practitioner and their work during the relevant insolvency process. However, a committee of creditors offers strength in numbers and gives creditors the power to have a better understanding of proceedings. Communication between the insolvency practitioner (IP) and the committee will also be more streamlined in comparison to communication with lots of individual creditors and this can help to keep costs down as it reduces the amount of work that is doubled up on.
Spread Legal Costs
With this in mind, another major benefit of setting up a creditors’ committee is the ability to spread out the costs of legal representation and other expenses. A committee of creditors can be given permission to employ legal counsel, accounting services and other necessary professional aid in order to better represent the interests of creditors at the cost of the bankrupt company. While these costs will still be deducted from the overall asset distribution, this does allow for a pooling of resources that can be of significant benefit to creditors.
If you’re having issues with insolvency proceedings, you should check out our Creditor Area for more professional guidance for creditors, or get in touch with our experienced team of insolvency professionals for any advice you may need.
