Representing the Committee Under the New Amendments: Disclosure Obligations, Conflicts and Committee Roles, Confidentiality and Privilege

By: Russell L. Munsch (Co-speaker)
The University of Texas at Austin 24th Annual Bankruptcy Conference
November 10-11, 2005

On April 20, 2005, President Bush signed into law the Bankruptcy Abuse and Consumer Protection Act of 2005 (the “Act”) which made sweeping changes to the Bankruptcy Code. With limited exceptions, the Act went into effect on October 17, 2005 and applies only to bankruptcy cases filed after that date. As noted by numerous commentators and bankruptcy practitioners, the Act will significantly alter the landscape of reorganizations. One area that will be considerably impacted involves the formation and composition of creditors’ committees and the duties and responsibilities imposed on committees and their counsel. The purpose of this paper is to (i) provide an overview of issues that may arise as certain provisions of the Act affecting the Committee and its counsel are implemented; and (ii) identify critical issues that may arise in connection with the expanded duties and responsibilities of the Committee and its counsel.

I. Introduction
The Bankruptcy Reform Act of 1978 (the “Code”) was the first comprehensive reform of the federal bankruptcy law in forty years. In the Code, Congress created a statutory committee of unsecured creditors1 to undertake the task of monitoring the bankruptcy estate. Provided that there are creditors who are willing and qualified to serve on the Committee, the appointment of a Committee is mandatory in virtually all chapter 11 cases.

Aside from the debtor-in-possession, the Committee is arguably the most important player in a Chapter 11 bankruptcy case. The Committee serves a vital role in the reorganization, in part, by acting as a counterweight to the debtor-in-possession by representing the interests of its constituents, the unsecured creditors. While the debtor-in-possession is responsible for the management of the estate, the Committee performs critical functions such as investigating the assets and liabilities of the estate, negotiating the terms of a plan of reorganization or in some cases proposing its own competing plan. Furthermore, in instances where the debtor-in-possession is either unable or unwilling to perform certain of its responsibilities, the Committee often assumes those duties such as prosecuting avoidance actions and other litigation on behalf of the estate. A Committee is essential for reorganization cases to function fairly and for the interests of the unsecured creditors to be properly represented.2

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