In Chapter 9 bankruptcy cases, the role of creditors is considerably restricted than in cases filed under other chapters of the Bankruptcy Code. The restrictions of creditors in a Chapter 9 Municipality Bankruptcy are as follows:
- Creditors have no opportunity or power to query the municipality debtor representatives in a creditors’ meeting;
- Generally, there is no creditors’ meeting in a Chapter 9 Municipality Bankruptcy. However, there are regular creditors’ meeting in a Chapter 11 bankruptcy;
- Creditors have no authority or opportunity to propose a reorganization plan; and
- The involvement of individual creditor is much limited in Chapter 9 bankruptcy proceedings.
However, the creditors are not considered totally immobilized in Chapter 9 bankruptcy. They enjoy certain powers such as:
- Creditors can challenge the eligibility of a municipality debtor under Chapter 9 bankruptcy proceedings;
- Creditors can file objections to debtors’ motions;
- Creditors have authority to vote on and oppose to a reorganization plan; and
- Creditors can secure special revenue bonds only for the special project or scheme.
The role of a creditors’ committee is to ensure and represent the interests of creditors and other interested parties as a whole. Chapter 11, Sections 1102 and 1103 provide for appointment and formation of a creditors’ committee. Similarly, Chapter 11, Section 901 (a) provides for forming Chapter 9 creditors’ committee. After formation and appointment, Chapter 9 creditors’ committee gets certain powers and duties such as:
- Using one or more legal counsels, accounting professionals, or other experts to represent the creditors’ committee during the administration of Chapter 9 bankruptcy case;
- Discussing with the officials of the debtor municipality regarding bankruptcy case management issues;
- Inspecting the performance, conduct, real assets, financial liabilities, and financial condition of the municipality debtor;
- Active participation in the formation process of reorganization plan; and
- Executing certain other services suiting the best interests of the members of the creditors’ committee.
