LAWDOG BANKRUPTCY: CHAPTER 11

Rule 2004 Examination

Section 341 Meeting

The Section 341 Meeting of Creditors, formerly and commonly referred to as "First Meeting of Creditors" is intended to provide an opportunity, early in the case, for questioning the debtor.

The United States Trustee's Office presides at this "341 Meeting". The debtor must appear and answer, under oath, questions posed by creditors or the U.S. Trustee's office. Bankruptcy Rules Rule 2003(a) provides that in a Chapter 11 reorganization case, the United States trustee must call a meeting of creditors to be held no fewer than 20 and no more than 40 days after the order of relief. Creditors may appear if they wish, and ask questions regarding the debtor's financial affairs and any proposed plan. See Section 341 reproduced here and Section 343 reproduced here for illustration purposes only.

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Rule 2004 Examination

In many instances, there are time constraints at a 341 Meeting. The 341 Meeting may be scheduled at a time when many other 341 Meetings are being held, or there may be numerous creditors present. In an unusual situation where the creditor has reason to more fully examine the debtor, a creditor may schedule an examination under Rule 2004. A motion must be filed with the Court to obtain an order for the debtor to appear for a Rule 2004 examination. See Bankruptcy Rules Rule 2004 reproduced here for illustration purposes only.

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Creditors' Committee

Special Rule For A Small Business Debtor

An unsecured creditors' committee is appointed by the United States Trustee upon the filing of a Chapter 11 petition to represent the interests of unsecured creditors in the bankruptcy estate. The debtor is required to file, along with the Chapter 11 voluntary petition, a list of holders of the twenty largest unsecured claims. In an involuntary case, this must be filed within two days after the order for relief. See Bankruptcy Rules Rule 1007 (d) reproduced here for illustration purposes only.

Selected From Largest Willing Unsecured Creditors

Section 1102 provides for a committee of unsecured creditors consisting of persons, willing to serve, holding the seven largest claims against the debtor of the type represented by the committee, or, in certain circumstances, consisting of the members of a committee organized by creditors before the commencement of the case. Additional committees of creditors may be appointed as the United States trustee deems appropriate. The committee is the representative of the class of creditors from which its members are drawn. See Section 1102 reproduced here for illustration purposes only.

Committee May Hire Certain Professionals

Pursuant to Section 1103, the committee has the right, at a scheduled meeting with a majority of members present, and with court approval, to elect attorneys, accountants, or other agents, to represent it or perform services for it. An attorney or accountant employed to represent a committee appointed under section 1102 may not, while employed by such committee, represent any other entity having an adverse interest in connection with the case. See Section 1103 (b) reproduced here for illustration purposes only.

Purposes of Committees

Section 1103 further provides that a committee may consult with the debtor in possession or trustee, investigate the acts, conduct, assets, liabilities, and financial condition of debtor, the operation of debtor's business and the desirability of the continuance of such a business, and any other matter relevant to the case or to a plan. The committee also may participate in the formulation of a plan, advise those represented by the committee of its determination as to any plan formulated, and collect and file with the court acceptances or rejections of a plan; request the appointment of a trustee or examiner under Section 1104, and perform such other services as are in the interest of those it represents. See Section 1103 (c) reproduced here for illustration purposes only.

Legal counsel should always be employed to advise on the duties and responsibilities of the committee in an actual case. Special fiduciary duties may be imposed on creditors who agree to act as members of the creditors' committee. Responsibilities should be taken seriously, honestly, without conflicting interests, and with loyalty to the other creditors represented. Actions which exceed those authorized by a Court order or by statute, or which involve willful misconduct, may expose committee members to liability. Special rules which may apply to a Small Business Debtor are shown below.

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Small Business Debtor

In a case involving a debtor which has qualified, and has elected to be a "Small Business Debtor", the appointment of a creditors' committee may not be required. To qualify as a Small Business Debtor, the debtor must be engaged in a commercial or business activity (other than owning or managing real property and activities incidental thereto) and the total amount of noncontingent, liquidated secured and unsecured debts must not exceed $2,000,000 when the case is filed.

On request of a party in interest, in a case in which the debtor is a small business and for cause, the court may order that a committee of creditors not be appointed. See Section 1102 (a)(3) reproduced here for illustration purposes only.

For more about this expedited procedure in a Chapter 11 case see Small Business Debtor linked here. Link does not return to this page.

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