Bankruptcy: Appointment/Modification of Creditor Committees

This case involved the bankruptcy of a debtor corporation caused by the filing of thousands of individual tort claims. The U.S. Trustee appointed as members of the Official Committee of Tort Claimants ("OCTC") a number of attorneys who each represented a large number of such claimants. The Bankruptcy Court, 10 months after the appointments, sua sponte ordered the U.S. Trustee to appoint a new OCTC consisting of actual tort creditors. The Bankruptcy Court based its ruling upon 11 USC § 1102(A)(1) which states that "the United States Trustee shall appoint a committee of creditors holding unsecured claims. . . ." Several interested parties, including the OCTC and the U.S. Trustee filed an interlocutory appeal to the district court to review the order of the Bankruptcy Court.

The district court found that the language of § 1102(A)(1), unlike its predecessor, does not give bankruptcy courts a direct role in the appointment or modification of creditor committees. That section mandates that the U.S. Trustee appoint a committee of creditors and gives the Trustee discretion to appoint additional committees as the trustee deems appropriate. A party in interest under § 1102(A)(2) may request that the Bankruptcy Court order the appointment of additional committees if necessary to assure adequate representation, however, if the Bankruptcy Court finds that additional committees are needed in order to assure adequate representation of creditors, the U.S. Trustee is mandated to appoint the committee, not the Bankruptcy Court. Accordingly, the district court reversed the Bankruptcy Court's order.

In Re: Dow Corning Corporation, Case Nos. 96-CV-71456-DT, 96-CV-71481-DT, and 96-CV-71500-DT, ED Mich, 6/25/97, Hood, D.P. (dkt #53).

This article was written by William F. Frey, a partner in our Litigation Department, and previously appeared in the September 1997 edition of the Michigan Bar Journal.