11 U.S.C. § 1103 — Powers and duties of committees

Page 240 TITLE 11—BANKRUPTCY § 1103 have responsibility to administer the estate and to for- mulate a plan as provided in section 1106(a). There is no need for the election or appointment of committees for which the appointment of a trustee is mandatory. In the case of a public company there are likely to be several committees, each representing a different class of security holders and seeking author- ity to retain accountants, lawyers, and other experts, who will expect to be paid. If in the case of a public company creditors or stockholders wish to organize committees, they may do so, as authorized under sec- tion 1109(a). Compensation and reimbursement will be allowed for contributions to the reorganization pursu- ant to section 503(b) (3) and (4). HOUSE REPORT NO. 95–595 This section provides for the appointment of credi- tors’ and equity security holders’ committees, which will be the primary negotiating bodies for the formula- tion of the plan of reorganization. They will represent the various classes of creditors and equity security holders from which they are selected. They will also provide supervision of the debtor in possession and of the trustee, and will protect their constituents’ inter- ests. Subsection (a) requires the court to appoint at least one committee. That committee is to be composed of creditors holding unsecured claims. The court is au- thorized to appoint such additional committees as are necessary to assure adequate representation of credi- tors and equity security holders. The provision will be relied upon in cases in which the debtor proposes to af- fect several classes of debt or equity holders under the plan, and in which they need representation. Subsection (b) contains precatory language directing the court to appoint the persons holding the seven larg- est claims against the debtor of the kinds represented on a creditors’ committee, or the members of a prepetition committee organized by creditors before the order for relief under chapter 11. The court may continue prepetition committee members only if the committee was fairly chosen and is representative of the different kinds of claims to be represented. The court is restricted to the appointment of persons in order to exclude governmental holders of claims or in- terests. Paragraph (2) of subsection (b) requires similar treat- ment for equity security holders’ committees. The seven largest holders are normally to be appointed, but the language is only precatory. Subsection (c) authorizes the court, on request of a party in interest, to change the size or the membership of a creditors’ or equity security holders’ committee if the membership of the committee is not representative of the different kinds of claims or interests to be rep- resented. This subsection is intended, along with the nonbinding nature of subsection (b), to afford the court latitude in appointing a committee that is manageable and representative in light of the circumstances of the case. Editorial Notes REFERENCES IN TEXT Section 3(a)(1) of the Small Business Act, referred to in subsec. (a)(4), is classified to section 632(a)(1) of Title 15, Commerce and Trade. AMENDMENTS 2019—Subsec. (a)(3). Pub. L. 116–54 added par. (3) and struck out former par. (3) which read as follows: ‘‘On request of a party in interest in a case in which the debtor is a small business debtor and for cause, the court may order that a committee of creditors not be appointed.’’ 2005—Subsec. (a)(3). Pub. L. 109–8, § 432(b), inserted ‘‘debtor’’ after ‘‘small business’’. Subsec. (a)(4). Pub. L. 109–8, § 405(a), added par. (4). Subsec. (b)(3). Pub. L. 109–8, § 405(b), added par. (3). 1994—Subsec. (a). Pub. L. 103–394 substituted ‘‘Except as provided in paragraph (3), as’’ for ‘‘As’’ in par. (1) and added par. (3). 1986—Subsec. (a). Pub. L. 99–554, § 221(1), amended sub- sec. (a) generally, substituting ‘‘chapter 11 of this title, the United States trustee shall appoint a committee of creditors holding unsecured claims and may appoint additional committees of creditors or of equity secu- rity holders as the United States trustee deems appro- priate’’ for ‘‘this chapter, the court shall appoint a committee of creditors holding unsecured claims’’ in par. (1) and ‘‘United States trustee’’ for ‘‘court’’ in par. (2). Subsec. (c). Pub. L. 99–554, § 221(2), struck out subsec. (c) which read as follows: ‘‘On request of a party in in- terest and after notice and a hearing, the court may change the membership or the size of a committee ap- pointed under subsection (a) of this section if the mem- bership of such committee is not representative of the different kinds of claims or interests to be rep- resented.’’ 1984—Subsec. (b)(1). Pub. L. 98–353 substituted ‘‘com- mencement of the case’’ for ‘‘order for relief’’. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2019 AMENDMENT Amendment by Pub. L. 116–54 effective 180 days after Aug. 23, 2019, see section 5 of Pub. L. 116–54, set out as a note under section 101 of this title. EFFECTIVE DATE OF 2005 AMENDMENT Amendment by Pub. L. 109–8 effective 180 days after Apr. 20, 2005, and not applicable with respect to cases commenced under this title before such effective date, except as otherwise provided, see section 1501 of Pub. L. 109–8, set out as a note under section 101 of this title. EFFECTIVE DATE OF 1994 AMENDMENT Amendment by Pub. L. 103–394 effective Oct. 22, 1994, and not applicable with respect to cases commenced under this title before Oct. 22, 1994, see section 702 of Pub. L. 103–394, set out as a note under section 101 of this title. EFFECTIVE DATE OF 1986 AMENDMENT Effective date and applicability of amendment by Pub. L. 99–554 dependent upon the judicial district in- volved, see section 302(d), (e) of Pub. L. 99–554, set out as a note under section 581 of Title 28, Judiciary and Judicial Procedure. EFFECTIVE DATE OF 1984 AMENDMENT Amendment by Pub. L. 98–353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98–353, set out as a note under section 101 of this title. § 1103. Powers and duties of committees (a) At a scheduled meeting of a committee ap- pointed under section 1102 of this title, at which a majority of the members of such committee are present, and with the court’s approval, such committee may select and authorize the em- ployment by such committee of one or more at- torneys, accountants, or other agents, to rep- resent or perform services for such committee. (b) An attorney or accountant employed to represent a committee appointed under section 1102 of this title may not, while employed by such committee, represent any other entity hav- ing an adverse interest in connection with the case. Representation of one or more creditors of the same class as represented by the committee shall not per se constitute the representation of an adverse interest. Page 241 TITLE 11—BANKRUPTCY § 1104 (c) A committee appointed under section 1102 of this title may— (1) consult with the trustee or debtor in pos- session concerning the administration of the case; (2) investigate the acts, conduct, assets, li- abilities, and financial condition of the debtor, the operation of the debtor’s business and the desirability of the continuance of such busi- ness, and any other matter relevant to the case or to the formulation of a plan; (3) participate in the formulation of a plan, advise those represented by such committee of such committee’s determinations as to any plan formulated, and collect and file with the court acceptances or rejections of a plan; (4) request the appointment of a trustee or examiner under section 1104 of this title; and (5) perform such other services as are in the interest of those represented. (d) As soon as practicable after the appoint- ment of a committee under section 1102 of this title, the trustee shall meet with such com- mittee to transact such business as may be nec- essary and proper. (Pub. L. 95–598, Nov. 6, 1978, 92 Stat. 2627; Pub. L. 98–353, title III, §§ 324, 500, July 10, 1984, 98 Stat. 358, 384.) HISTORICAL AND REVISION NOTES SENATE REPORT NO. 95–989 This section defines the powers and duties of a com- mittee elected or appointed under section 1102. Under subsection (a) the committee may, if author- ized by the court, employ one or more attorneys, ac- countants, or other agents to represent or perform services for the committee. Normally one attorney should suffice; more than one may be authorized for good cause. The same considerations apply to the serv- ices of others, if the need for any at all is dem- onstrated. Under subsections (c) and (d) the committee, like any party in interest, may confer with the trustee or debtor regarding the administration of the estate; may advise the court on the need for a trustee under section 1104(b). The committee may investigate matters speci- fied in paragraph (2) of subsection (c), but only if au- thorized by the court and if no trustee or examiner is appointed. HOUSE REPORT NO. 95–595 Subsection (a) of this section authorizes a committee appointed under section 1102 to select and authorize the employment of counsel, accountants, or other agents, to represent or perform services for the committee. The committee’s selection and authorization is subject to the court’s approval, and may only be done at a meet- ing of the committee at which a majority of its mem- bers are present. The subsection provides for the em- ployment of more than one attorney. However, this will be the exception, and not the rule; cause must be shown to depart from the normal standard. Subsection (b) requires a committee’s counsel to cease representation of any other entity in connection with the case after he begins to represent the com- mittee. This will prevent the potential of severe con- flicts of interest. Subsection (c) lists a committee’s functions in a chapter 11 case. The committee may consult with the trustee or debtor in possession concerning the adminis- tration of the case, may investigate the acts, conduct, assets, liabilities and financial condition of the debtor, the operation of the debtor’s business, and the desir- ability of the continuance of the business, and any other matter relevant to the case or to the formulation of a plan. The committee may participate in the formu- lation of a plan, advise those it represents of the com- mittee’s recommendation with respect to any plan for- mulated, and collect and file acceptances. These will be its most important functions. The committee may also determine the need for the appointment of a trustee, if one has not previously been appointed, and perform such other services as are in the interest of those rep- resented. Subsection (d) requires the trustee and each com- mittee to meet as soon as practicable after their ap- pointments to transact such business as may be nec- essary and proper. Editorial Notes AMENDMENTS 1984—Subsec. (b). Pub. L. 98–353, §§ 324, 500(a), sub- stituted ‘‘An attorney or accountant’’ for ‘‘A person’’, substituted ‘‘entity having an adverse interest’’ for ‘‘entity’’, and inserted provision that representation of one or more creditors of the same class as represented by the committee shall not per se constitute the rep- resentation of an adverse interest. Subsec. (c)(3). Pub. L. 98–353, § 500(b)(1), substituted ‘‘determinations’’ for ‘‘recommendations’’, and ‘‘ac- ceptances or rejections’’ for ‘‘acceptances’’. Subsec. (c)(4). Pub. L. 98–353, § 500(b)(2), struck out ‘‘if a trustee or examiner, as the case may be, has not pre- viously been appointed under this chapter in the case’’ after ‘‘section 1104 of this title’’. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 1984 AMENDMENT Amendment by Pub. L. 98–353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98–353, set out as a note under section 101 of this title. § 1104. Appointment of trustee or examiner (a) At any time after the commencement of the case but before confirmation of a plan, on request of a party in interest or the United States trustee, and after notice and a hearing, the court shall order the appointment of a trust- ee— (1) for cause, including fraud, dishonesty, in- competence, or gross mismanagement of the affairs of the debtor by current management, either before or after the commencement of the case, or similar cause, but not including the number of holders of securities of the debt- or or the amount of assets or liabilities of the debtor; or (2) if such appointment is in the interests of creditors, any equity security holders, and other interests of the estate, without regard to the number of holders of securities of the debt- or or the amount of assets or liabilities of the debtor. (b)(1) Except as provided in section 1163 of this title, on the request of a party in interest made not later than 30 days after the court orders the appointment of a trustee under subsection (a), the United States trustee shall convene a meet- ing of creditors for the purpose of electing one disinterested person to serve as trustee in the case. The election of a trustee shall be con- ducted in the manner provided in subsections (a), (b), and (c) of section 702 of this title. (2)(A) If an eligible, disinterested trustee is elected at a meeting of creditors under para-