Advising Unsecured Creditors in Complex Bankruptcies

It is important to recognize that individual creditors, even those with significant stakes, seldom have much ability to influence the bankruptcy process. When complex entities and financial transactions are involved, the Chapter 11 filing and the events to follow are often understood only by the creditors with the most at stake who are close to the action, well informed and highly motivated. Often, some of these creditors may be appointed to the creditors” committee. In those situations, a creditors” committee, although representative to a degree, may not be able to provide timely and meaningful information and assistance to creditors outside the active inner circle.

This article explores the roles of examiners and trustees in Chapter 11 cases and focuses on how corporate counsel can best protect a client”s position as a single unsecured creditor or party in interest, beyond filing a proof of claim or seeking relief from the stay. For the reasons explained below, in today”s economic environment, when indications of corporate mismanagement or complex undisclosed transactions surface, corporate counsel should be armed with an understanding of when and how to protect their clients” interests by supporting the appointment of a qualified Chapter 11 examiner or trustee.