Role of Creditors

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.

Inside Role of Creditors