GETTING JUDICIAL APPROVAL OF THE APPOINTMENT OF EQUITY COMMITTEES IN CHAPTER 11 CASES IS AN UPHILL BATTLE

chapter-11

In the typical large  chapter 11 case, the debtor’s going concern value is less than the sum of all debts that are competing for a recovery from the debtor.  Because prepetition debt generally exceeds the debtor’s value, equity interests will be eliminated in the reorganization with the consequence that equity security holders are not welcomed to the bargaining table.  This, of course, is bad news for the debtor’s owners.

If, on the other hand, there is some lingering doubts concerning the presence of positive equity value, equity security holders often asks the bankruptcy court to appoint a committee of equity holders to advance their interests in the proceedings.

This request raises at least two issues.  First, the equity holders’ committee will inevitably hire professionals, with the expectation that the debtor’s estate will foot the bill.  Administrative expenses, including professional fees, come first in priority.  Accordingly, the appointment of equity is likely going to cost senior debt claimants some of their recovery.  That result is not very popular when creditors are certain that there is no equity value.

Second, because equity has essentially nothing to lose in the process, equity security committees often take very aggressive positions that threaten the delicate negotiating process that takes place in the typical large chapter 11 case.

For these two reasons, among others, courts struggle when asked to appoint equity committees.  Here is a recent article that highlights some of the key considerations.

If you’d like to learn more about chapter 11 bankruptcy, email me tzink@mccarthyfingar.com for a free copy of my written summary.

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We are a debt relief agency, we help people file for Bankruptcy under the Bankruptcy Code. This Blog is made available by the lawyer or law firm publisher for educational purposes only as well as to give you general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand that there is no attorney-client relationship between you and the Blog publisher. The Blog should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.

 

 

Author: westchesterbankruptcylawyer

https://www.avvo.com/assets/badges-v2.jsLawyer Ted Zink | Featured Attorney Bankruptcy

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