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BACKGROUND INFORMATION FOR CHAPTER 11 COMMITTEES OF UNSECURED CREDITORS

INTRODUCTION

This booklet was written for the purpose of providing credit managers and other persons who serve on creditors' committees with general information on the Chapter 11 process and on the operation and function of a Chapter 11 committee within that process.

This booklet should not be relied upon as legal advice. Practice and procedure are different from jurisdiction to jurisdiction and from court to court. The facts of any particular case are extremely important in determining the legal strategy to be pursued. In the event that any question should arise in the context of any bankruptcy case, it is recommended that committee counsel be consulted.

TABLE OF CONTENTS

I. THE COMMITTEE OF UNSECURED CREDITORS

A. Rationale for Formation of Committee
B. Formation of Committee
C. Adding and Deleting Members
D. Resignation of Member
E. Fiduciary Responsibility of Committee Members
F. Powers and Duties of Committee
G. By-Laws
H. Retention of Professionals
I. Reimbursement of Committee Expenses
J. Termination of Committee
K. Qualified Immunity of Committee Members

II. BUSINESS ISSUES IN A TURNAROUND

A. Distinguishing Between Legal and Business Issues in a Chapter 11
B. The Turnaround as a Distinct Business Strategy
C. Stages of a Turnaround
D. Stage I - the Chapter 11 Filing and Stabilization
E. Stage II - Situation Analysis
1. Determination of Operational Viability
2. Evaluate Liquidation Value
F. Stage III - Strategy Formulation
G. Implementation of Strategy

III. OVERVIEW OF BANKRUPTCY

A. Purpose of Bankruptcy Code
B. Chapter 7
C. Statutory Priorities

IV. OVERVIEW OF CHAPTER 11

A. Creation of Estate and Duties of Debtor-in-Possession
B. Right to Continue to Operate Business
C. Exclusivity Period
D. Disclosure Statement
E. Plan Funding
F. Elements of a Plan
G. Plan Confirmation Process
H. Requirements for Plan Confirmation
I. Requirement That Plan Satisfies " Interests of Creditors" Test
J. Requirement That All Impaired Classes Have Voted in Favor of the Plan and "Cramdown"
K. Plan Negotiation
L. Alternatives to Debtor's Plan
M. Seeking Appointment of Chapter 11 Trustee or Examiner

V. PLAN DEFAULT AND POST-CONFIRMATION REMEDIES

A. Effect of Plan Confirmation
B. State or Federal Court Lawsuit for Default
C. Bankruptcy Court Remedies
1. Revocation of Confirmation
2. Modification of the Plan
3. Section 1142 Order to Aid in Implementation of Plan
4. Conversion of Case
5. Other Remedies

VI. RECURRING ISSUES IN CHAPTER 11

A. Introduction
B. Relief from the Automatic Stay (Section 362)
C. Use of Cash Collateral/Cash Collateral Stipulation (Section 363)
D. Sale of Assets Other Than in the Ordinary Course of Business (Section 363)
E. Postpetition Credit (Section 364)
F. Executory Contracts and Leases (Section 365)
G. Equitable Subordination (Section 510)
H. Substantive Consolidation (Section 105)
I. Fraudulent Conveyances (Sections 544 and 548)
J. Preferences (Section 547)
K. Avoidable Postpetition Transfers (Section 549)
L. Setoff (Section 553)
M. Abandonment (Section 554)
N. Claims Litigation

APPENDIX - DRAFT BY-LAWS OF THE OFFICIAL UNSECURED CREDITORS' COMMITTEE