The US Perspective

Introduction

Perhaps you are a creditor of a US company, and you have just received notice that the company has filed a Chapter 11 bankruptcy case. You will likely want to find some way not only to monitor but also to exert influence over the company’s conduct in bankruptcy because its decisions may determine if, when and how much you will be paid. Being the astute creditor that you are, you know that the US Bankruptcy Code[2] (the Bankruptcy Code) generally requires the US Trustee – the component of the US Department of Justice responsible for overseeing the administration of bankruptcy cases[3] – to appoint an official committee of unsecured creditors ‘as soon as practicable’ after a Chapter 11 petition is filed[4] to protect the rights of unsecured creditors.[5] However, perhaps you are a secured creditor and, thus, are not eligible to serve as a member of the official committee of unsecured creditors. Or perhaps you are an unsecured creditor and either you were not selected to serve on the official committee of unsecured creditors[6] or you elected not to serve as such. After all, the obligations imposed on an official committee of unsecured creditors are, arguably, just as ‘extraordinary’ as the rights bestowed on it.[7] Whatever your situation may be, you are likely to want to maximise your recovery without spending a fortune. Under these circumstances, an ad hoc committee might be a suitable means for you to play a larger role in the case than you could on your own, while minimising your out-of-pocket costs.

This chapter explores the basic principles underlying the formation and functioning of ad hoc committees in US bankruptcy cases under Chapter 11 of the Bankruptcy Code.[8] The chapter includes information about:

  • official committees in US bankruptcy cases;
  • the role of ad hoc committees in US bankruptcy cases;
  • the reasons why stakeholders might choose to form an ad hoc committee;
  • issues regarding the management of ad hoc committees and the obligations imposed on ad hoc committees and their professionals;
  • the high standard ad hoc committees must meet to receive compensation for their fees and expenses from a debtor’s estate; and
  • a recent example of a case in which an ad hoc committee met the standard for compensation for its fees and expenses.

Official committees

Before delving into the details regarding the formation, management and obligations of ad hoc committees under US bankruptcy law, some background regarding official committees in Chapter 11 cases may be helpful. As stated above, the Bankruptcy Code requires the US Trustee to appoint an official committee of unsecured creditors ‘as soon as practicable’ after the filing of a Chapter 11 petition, with limited exceptions.[9] The official committee of unsecured creditors ‘is one of the key players in the Chapter 11 bankruptcy process’[10] and ‘ordinarily consist[s] of the persons, willing to serve, that hold the seven largest claims against the debtor of the kinds represented on such committee’.[11] The court may order the US Trustee to add or remove members of an official committee ‘if the court determines that the change is necessary to ensure adequate representation of creditors’.[12] The Bankruptcy Code also empowers courts, upon request, to order the appointment of additional official committees of creditors or equity security holders ‘if necessary to assure adequate representation of creditors or equity security holders’.[13]

Official committees tend to operate within a structured format that includes the adoption of by-laws, the formation of subcommittees, the appointment of a chair and the scheduling of regular meetings.[14] Importantly, members of official committees do not serve on committees to protect their own interests. Instead, it is their job to advocate on behalf of unsecured creditors or equity holders as a whole. Thus, they owe fiduciary duties to all members of the class.[15] The Bankruptcy Code also requires official creditors committees to provide access to information to creditors who hold claims of the kind represented by the committee but are not appointed to the committee, and to solicit and receive comments from holders of claims of the kind represented by the committee.[16]

The Bankruptcy Code provides official committees with significant rights and powers. Among other things, official committees may:

(1) consult with the trustee or debtor in possession concerning the administration of the case; (2) investigate the acts, conduct, assets, liabilities, and financial condition of the debtor, the operation of the debtor’s business and the desirability of the continuance of such business, 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 [to manage the case] or examiner [to investigate certain issues] . . . ; and (5) perform such other services as are in the interest of those represented.[17]

In addition, official committees are entitled to reimbursement of their expenses and payment of the fees and expenses of their professionals.[18]

What is an ad hoc committee?

Generally

Under US bankruptcy law, an ad hoc committee is an unofficial committee of creditors or equity interest holders with similar claims or interests who join together to collaborate in a bankruptcy case.[19] Specifically:

Ad hoc, or unofficial, committees provide a mechanism by which creditors or equity interest holders with a common agenda can join together on an informal basis to advance their interests in the reorganization process. To put it simply: any group of creditors or equity holders who gets together and hires counsel to advance a common agenda in a bankruptcy case can be an ad hoc committee, whether or not it so labels itself. The theory behind ad hoc committees is that multiple creditors or equity holders singing together in chorus is better than a cacophony of individual creditors or equity holders each singing its own tune.[20]

Virtually any group of stakeholders, including bondholders, noteholders, shareholders, unions, lessors, tort claimants, trade creditors, secured loan syndicates and hedge funds, may choose to form an ad hoc committee.

Formation

There is no provision in the Bankruptcy Code requiring or prohibiting the formation of ad hoc committees. Thus, the role of ad hoc committees may vary depending on the nature of a particular case and the motives of the committee. Unlike official committees, ad hoc committees are not appointed by the US Trustee, and members may join and withdraw freely.[21] Ad hoc committees are also generally free to organise themselves in any way they see fit.[22] Typically, ad hoc committees are formed after stakeholders come together for the purpose of furthering their particular interests.[23] At times, however, debtors may encourage the formation of ad hoc committees, particularly in the context of out-of-court restructurings, as a way to help facilitate a settlement quickly.[24]

Reasons for forming an ad hoc committee

There are several reasons stakeholders may decide to form an ad hoc committee. Principal among these may be the simple idea of strength in numbers, as multiple parties joining together with respect to their position carry more weight than one party speaking on its own.[25] Coordinated action by the members of an ad hoc committee can also result in increased efficiencies in a bankruptcy case. Ad hoc committees will file pleadings on behalf of their members and eliminate the need for each member to file individual and duplicative motions and objections.[26] These efficiencies may result in substantial cost savings for committee members, as the members can pool their resources to pay for professional fees and other expenses.[27] Further, if the members of an ad hoc committee make up a great enough portion of a particular voting class, the committee might have the power to block a Chapter 11 plan.[28]

In addition to the benefits that a larger group acting in unison confers on its members, ad hoc committees also possess a degree of freedom and flexibility not shared by official committees. For instance, ad hoc committees generally do not have fiduciary duties to a class of creditors and, therefore, members can act in their own best interests without any obligation to protect the interests of non-committee members.[29] Further, although ad hoc committees may suffer from instability as a result of frequent changes in membership,[30] they are not subject to oversight by the US Trustee. This lack of oversight gives them additional leeway in conducting business and managing their affairs. Finally, unlike official committees, ad hoc committees are not typically subject to trading restrictions so long as they agree not to obtain or use material, non-public information.[31]

Management and obligations of ad hoc committees and their professionals

Generally

In addition to their ability to organise in any way they see fit, ad hoc committees may manage themselves in whatever way suits them.[32] Because an ad hoc committee is not a formal organisation with a codified formation of process, engagement letters with counsel typically serve as the means to confirm the existence of a committee.[33] Engagement letters may also provide a mechanism for executing other processes, such as adding or removing committee members.[34] As with official committees, ad hoc committees may also adopt by-laws or other corporate governance tools, but management may be less formal.[35] Ad hoc committees may decide, for instance, to adopt by-laws that provide that certain members of the group can make certain decisions that are binding on all members or decide to vest more decision-making authority with counsel representing the committee.

Confidential information and trading restrictions

Ad hoc committees may communicate freely with the debtor, but because debtors are not obliged to disclose information to ad hoc committees, ad hoc committees may have limited access to information.[36] Whether the members of an ad hoc committee wish to receive material non-public information about the debtor, however, is a decision that must be made after weighing the pros and cons. If ad hoc committee members gain access to material non-public information that may be important to their understanding of a case, the members are not likely to be able to trade their positions without restriction.[37] As such, committee members must balance their desire for material non-public information with their desire to trade their positions freely.[38]

Further, it is possible that some committee members, such as long-term investors, may wish to obtain confidential information to make well-informed decisions with respect to the company, while others, such as short-term distressed debt traders, might prefer to maintain their ability to trade freely.[39] Special considerations come into play when some committee members receive confidential information and others do not. For example, counsel to the committee must be especially careful to keep committee members informed but not disclose confidential information to those parties not entitled to it.

Attorney–client privilege

Unique issues arise with respect to the attorney–client privilege as it relates to ad hoc committees. Although courts generally recognise an attorney–client privilege involving communications between the ad hoc committee’s lawyers and committee members, there is some dispute as to whether the client – the holder of the privilege – is considered to be the committee members as individuals or the committee as a whole.[40] Under the common law ‘joint client doctrine’, when two or more persons consult an attorney on a matter, their confidential communications with the attorney relating to the matters in common interest to the clients are considered privileged such that no third party could have access to the communications.[41] Thus, the joint client doctrine will protect confidential communications from being discovered by third parties so long as either or both clients can show that they jointly consulted the attorney with the intent to keep their communications confidential. However, the attorney–client privilege would not apply in any subsequent litigation between the clients themselves. As such, certain committees have adopted written joint defence agreements to make sure the attorney–client privilege applies to communications between more than one committee member and counsel.[42]

Conflicts of interest

Conflicts of interest issues may also arise in the context of representing ad hoc committees. Although joint representation offers the benefits of costs savings and added efficiency, conflicts may arise between two or more members of the committee that could force counsel to withdraw from representing one or more committee members.[43] Some have argued that the potential for conflicts of interest ‘may be lessened . . . by recent case law recognising that an ad hoc committee has a fiduciary duty to represent the interests of the particular stakeholder class as a whole, not the individual interests of any committee member’.[44] However, the clients might still be considered to be the individual committee members.[45] Given the varied economic interests that members of an ad hoc committee might have in the debtor’s estate,[46] attorneys representing ad hoc committees must navigate the representation carefully.

Disclosure obligations

One of the most important obligations ad hoc committees have is the requirement to comply with Rule 2019 of the Federal Rules of Bankruptcy Procedure. The 2011 amendments to Rule 2019 substantially expanded the scope of its coverage and the content of its disclosure requirements.[47] The Rule now requires every committee that consists of or represents multiple creditors or equity security holders ‘acting in concert to advance their common interests’, and not composed entirely of affiliates or insiders of one another, to file a verified statement that includes:

  • details regarding the formation of the committee, including the name of each entity at whose instance the group or committee was formed or for whom the group or committee has agreed to act;
  • the name and address of every creditor or equity security holder on the committee and every entity representing the committee;
  • the nature and amount of each disclosable economic interest any committee member or entity representing the committee holds in relation to the debtor; and
  • the acquisition date of each committee member’s disclosable economic interest acquired within one year of the date on which the bankruptcy petition is filed.[48]

The information about the nature and amount of a disclosable economic interest must be specifically provided on a member-by-member basis, and not in the aggregate.[49]

Notably, Rule 2019 also requires the filing of a supplementary statement at the time a committee takes a position before the court or solicits votes on a plan if there has been a material change in any of the information contained in its last filed statement.[50] The verified supplementary statement must set forth the material changes that have occurred regarding the information required to be disclosed.[51] If a court finds that a committee has failed to comply with the disclosure requirements of Rule 2019, it may, among other things, refuse to permit the committee to be heard or intervene in the case, or render invalid any authority, acceptance, rejection or objection of the committee.[52]

Payment of fees and expenses

Unlike official committees, ad hoc committees may generally be awarded administrative claims only for ‘actual, necessary’ expenses incurred if the committee has made a ‘substantial contribution’ to a Chapter 11 case.[53] If an ad hoc committee is found to have an administrative claim for making a substantial contribution, it may also be awarded an administrative claim for ‘reasonable compensation’ for its professionals and for any ‘actual, necessary expenses’ that they incur.[54] The Bankruptcy Code itself does not define ‘substantial contribution’.[55] In determining whether an applicant has made a substantial contribution to a case, courts examine whether the services were provided to benefit the estate itself or all the parties in the bankruptcy case, conferred a direct benefit on the estate and were duplicative of services performed by others.[56] Courts may also require a party to prove it made ‘extraordinary efforts’ to benefit the estate so as to make a substantial contribution finding.[57] If an applicant is motivated primarily by its own interests, or the benefit to the estate is only incidental and arising from the applicant’s pursuit of its own interests, courts in certain jurisdictions will find that an applicant’s contribution was not substantial.[58] Across jurisdictions, however, demonstrating a substantial contribution is a difficult standard to meet.[59]

Recent success story: In re M & G USA Corp

The M & G USA Corporation bankruptcy case heard in Delaware (M&G) provides an example of a relatively recent case in which an ad hoc committee significantly influenced the course of a bankruptcy case. In fact, the ad hoc committee’s impact was so meaningful that the bankruptcy court found that it satisfied the ‘substantial contribution’ test such that the expenses and professional fees the committee incurred were granted administrative claim status.[60] In M&G, the debtors, producers of products used in the manufacture of plastic bottles, filed for Chapter 11 protection after construction of a manufacturing plant in Corpus Christi, Texas, became substantially delayed and over budget.[61] One reason for the construction delay was that the debtors were engaged in disputes with the their prior engineering, procurement and construction firms, which resulted in hundreds of millions of dollars in mechanic’s liens being filed against the plant.[62] Certain of the mechanic’s lienholders formed an ad hoc committee to participate in the case.[63] Early in the case, the ad hoc committee filed a motion seeking to be appointed as an official committee.[64] Although the court denied that motion, citing the heavy burden for appointing additional official committees and the propriety of appointing an official committee to represent putatively secured creditors, the ad hoc committee remained active throughout the case.[65]

The debtors ultimately engaged in a sale and marketing process for the plant that yielded several expressions of interest from potential buyers, all of whom required that the sale be free of liens, claims and other encumbrances.[66] In exchange for the sale providing for an escrow of proceeds reserved to pay allowed claims of the mechanic’s lien claimants, the mechanic’s lien claimants released their liens on the plant.[67] Following the closing of the sale, the debtors proposed a plan, to which the ad hoc committee and several individual mechanic’s lien claimants objected on the basis that it did not provide for specific procedures for dealing with the mechanic’s liens.[68] The holders of claims in the class that included the mechanic’s liens also voted overwhelmingly to reject the plan.[69] However, the objections were ultimately settled as a result of a deal brokered between the ad hoc committee and the debtors. The settlement led to enough holders of claims in the mechanic’s lienholder claimants’ class switching their ballots for the class to have ultimately accepted the plan.[70]

Several months into the case, the ad hoc committee filed a motion seeking an order allowing it to have an administrative expense claim for the fees and costs of its counsel and financial adviser.[71] The ad hoc committee argued that it was entitled to have its request allowed because it materially assisted with both the sale and the plan process.[72] It emphasised that prospects for a sale would have been dim if the ‘scores or hundreds’ of mechanic’s lien claims had to be litigated. It also highlighted that its engagement with the debtors and potential buyers helped facilitate a consensual resolution, because the ad hoc committee served as the point of contact for dialogue between parties.[73] Further, the committee cited its decision to continue providing services even after the denial of its request to be appointed as an official committee as a ground for granting its motion. Such continuance, the committee argued, demonstrated that it was not acting with any expectation of payment from the bankruptcy estate.[74]

However, the litigation trust created under the debtor’s plan opposed the ad hoc committee’s motion on several grounds:[75]

  • First, the trust noted that the mechanic’s lien creditors were poised to receive a full recovery and, thus, the payment of additional funds to these claimants would constitute a windfall.[76]
  • Second, the trust argued that the ad hoc committee actually cost the estate a significant amount of money, given the amount of litigation and motion practice it pursued.[77]
  • Third, the trust asserted that the debtors were always planning to protect the mechanic’s lienholders, and that the ad hoc committee therefore did not contribute anything additional.[78]
  • Finally, the trust argued that the ad hoc committee’s role in confirming the plan was unimportant, as the mechanic’s lienholders’ cooperation was unimportant.[79]

The court ultimately found that the ad hoc committee provided a substantial contribution to the case and granted the ad hoc committee’s motion for administrative claim. The court stressed that the ‘multitude of entities holding mechanic’s liens against the debtors’ plant were important players in this restructuring’.[80] The court then explained that the two main contributions the ad hoc committee made were its negotiations resulting in a significant increase in the lienholder reserve cushion provided by the debtor in possession financing facility, and its facilitation of the consensual confirmation of a Chapter 11 plan.[81] With respect to the increase in the lienholder reserve, the court noted that the increase ultimately allowed for the sale of the debtors’ assets free and clear from the mechanic’s lienholders’ claims, as the reserve convinced the mechanic’s lienholders to release their liens at closing.[82] With respect to the facilitation of plan confirmation, the court noted that the ad hoc committee encouraged the negotiations that ultimately led to the settlement.[83] The court also highlighted that the committee ‘eased the burden upon the estate by providing a valuable coordinating function for the mechanic’s lienholders’ and ‘undertook its actions without expectation of compensation’ by continuing to play an active role even after the denial of its motion seeking to be appointed as an official committee.[84]

At first glance, M&G may appear to be a relatively straightforward, run-of-the-mill application of the rules regarding compensating ad hoc committees who make a ‘substantial contribution’. However, the case also adds several novel points to the discussion about what constitutes a substantial contribution. First, the case seems to indicate that if the group of stakeholders comprising the ad hoc committee is a group of ‘important players’, perhaps because they are linked to the issues giving rise to the debtor’s bankruptcy filing, courts may be more likely to find that any success by the ad hoc committee constitutes a substantial contribution. After all, before revealing its findings and conclusions, the court made clear that it was not ‘meaningfully in dispute that the multitude of entities holding mechanic’s liens against the Debtors’ Corpus Christi plant were important players in this restructuring’.[85] Second, the case seems to imply that the greater the number of stakeholders the ad hoc committee represents or with whom the ad hoc committee coordinates, the more likely courts may be to find that the committee made a substantial contribution. As the court explained, ‘simply identifying and contacting all of the mechanic’s lienholders was an arduous task’, and the ad hoc committee therefore ‘generally eased the burden upon the estate by providing a valuable coordinating function for the mechanic’s lien­holders’.[86] Finally, M&G teaches that in those jurisdictions where actions must be ‘undertaken absent an expectation of reimbursement from the estate’, an ad hoc committee’s attempt at recognition as an official committee might assist with a later finding that the committee made a substantial contribution if the request for recognition as an official committee is denied. In discussing its finding that the committee had not acted out of an expectation of being compensated, the court in M&G relied on the fact that the ad hoc committee had stayed active after its request for recognition as an official committee was denied.

Conclusion

Although membership on an official committee in a US bankruptcy case comes with more defined rights and powers, a stakeholder’s inability to land a seat on an official committee does not mean that it must navigate a bankruptcy case on its own. Ad hoc committees provide a means for just about any group of stakeholders in a bankruptcy case to coordinate their actions and pool their resources to add weight and credibility to their positions, and achieve significant cost savings and efficiencies. Ad hoc committees can also provide an alternative mechanism by which creditors who are eligible to serve as members of an official committee but do not wish to so serve (perhaps because of the trading restrictions, fiduciary duties or other obligations imposed on members of official committees) are able to participate meaningfully in a case. Although ad hoc committees are not completely free from obligations and duties, skilful stakeholders and practitioners can take advantage of the availability of the freer structure and more flexible rules to shape the trajectory of a bankruptcy case in accordance with their specific needs and desires.


Notes

[1] Darren Azman is a partner and Natalie Rowles is an associate at McDermott Will & Emery LLP.

[2] 11 U.S.C. §§ 101 to 1532.

[3] United States Dep’t of Justice, ‘US Trustee Program’, www.justice.gov/ust (last visited 1 August 2022).

[4] 11 U.S.C. § 1102(a).

[5] Nick Angel, Peter Newman and Edward Rasp, ‘A Comparison of an Ad Hoc Committee and Official Committee Under Insolvency and Other Laws in England and the United States’ in The Art of the Ad Hoc, p. 62 (First Edition, Howard Morris, James M Peck and Sonya Van de Graaff, eds., Global Restructuring Review, 2017).

[6] For example, perhaps you are not one of the largest unsecured creditors in the case. See, e.g., In re Remington Outdoor Co, Inc, No. 20-81688-CRJ-11 (Bankr. N.D. Ala. Aug. 6, 2020) (order overruling objection by the families of victims of the 2012 mass shooting at Sandy Hook Elementary School to the debtors’ list of top 40 unsecured creditors, the omission of which prevented the families from being considered for the unsecured creditors committee).

[7] Angel, et al., op. cit. note 5, at 62.

[8] In recent years, ad hoc committees have become more common in Chapter 11 cases. See ‘Educational Materials to Views from the Bench 2020: Dilemmas of an Official Committee Discussion with Hon. Christopher S. Sontchi et al.’ at Insolvency 2020 Restructuring, Insolvency & Distressed Debt Virtual Summit, at 4 (23 September 2020) (accessible to attendees) (explaining that certain case data and assumptions suggest that ad hoc committees have participated or appeared in 12 per cent or more of large Chapter 11 cases since 2016).

[9] 11 U.S.C. § 1102(a).

[10] Davis v. Elliot Mgmt Corp (In re Lehman Bros Holdings Inc), 508 B.R. 283, 287 (S.D.N.Y. 2014).

[11] 11 U.S.C. § 1102(b)(1). Although the statute discusses the seven largest claims, in reality, the official committee of unsecured creditors typically comprises between the three and the seven largest claims. Debtors are required to file, with their bankruptcy petition, a list of the creditors that hold the largest unsecured claims. 11 U.S.C. § 1007(d). An ad hoc committee formed prior to the filing of a Chapter 11 petition may also serve as the official committee of unsecured creditors during the Chapter 11 case if the ad hoc committee was ‘fairly chosen and is representative of the different kinds of claims to be represented’. 11 U.S.C. § 1102(b)(1); see also Fed. R. Bankr. P. 2007.

[12] 11 U.S.C. § 1102(a)(4).

[13] 11 U.S.C. § 1102(a)(2). However, the statute and applicable case law impose a ‘heavy burden’ for the appointment of additional official committees. In re M & G USA Corp, 599 B.R. 256 (Bankr. D. Del. 2019).

[14] Robert J Rosenberg, et al., ‘Ad Hoc Committees and Other (Unofficial) Creditor Groups: Management, Disclosure and Ethical Issues’, ABI Bus. Reorganization Committee Newsletter (June 2008), at 271, available at https://abi-org-corp.s3.amazonaws.com/cle/materials/2008/May/AdHoc.pdf (last accessed 16 August 2022).

[15] Collier on Bankruptcy, ¶ 1102.06 (Richard Levin and Henry J Sommer, eds, 16th ed., rev. 2020) (discussing the ‘fiduciary duties imposed upon official committees’); see also Angel, et al., op. cit. note 5, at 67 (‘an official committee owes fiduciary duties of care and loyalty to its constituents, which means that members of the committee must act in the best interest of the entire constituency rather than in their own individual interests’).

[16] 11 U.S.C. § 1102(b)(3).

[17] 11 U.S.C. § 1103(c).

[18] 11 U.S.C. § 330(a).

[19] Collier on Bankruptcy, ¶ 83.04 (Richard Levin and Henry J Sommer, eds, 16th ed., rev. 2020); Henry C Kevane, Jeffrey T Kucera and Matthew J Ochs, ‘No More Ad Lib: The Nuts and Bolts of Ad Hoc Bankruptcy Committees’, Bus. Law Today, 1 (Dec 2014).

[20] Rosenberg, et al., op. cit. note 14, at 261.

[21] ibid., at 269.

[22] id.

[23] Kevane, et al., op. cit. note 19, at 2.

[24] ibid., at 1.

[25] See In re Washington Mut., Inc., 419 B.R. 271, 280 (Bankr. D. Del. 2009) (‘Collective action of creditors through the use of an ad hoc committee or group is a form of leverage, wherein the parties utilize other group members’ holdings to obtain a greater degree of influence on the case. This enables theoretically better returns than if creditors were to act individually in a case.’); see also In re Northwest Airlines Corp., 363 B.R. 701, 703 (Bankr. S.D.N.Y. 2007) (‘By appearing as a “committee” . . . the members purport to speak for a group and implicitly ask the court and other parties to give their positions a degree of credibility appropriate to a unified group with large holdings.’).

[26] Rosenberg, et al., op. cit. note 14, at 267.

[27] ibid., at 268.

[28] See Eric B Fischer, ‘Hedge Funds and the Changing Face of Corporate Bankruptcy Practice’, 25-10 Amer. Bankr. Inst. J. 24, 88 (2007) (‘Ad hoc committees are particularly effective when their members hold a blocking position with respect to a class of claims.’). A bankruptcy court cannot confirm a plan with impaired classes unless it has been accepted by at least one class of non-insiders who hold impaired claims. 11 U.S.C. § 1119(a)(10). For a class of claims to accept a plan, creditors that hold at least two-thirds of the aggregate amount and more than half of the number of allowed claims in the class must accept the plan. 11 U.S.C. § 1126(c).

[29] See, e.g., Daniel A Fliman and Isaac S Sasson, ‘Introduction to Ad Hoc Committees in Distressed Situations’, 256–63 N.Y.L.J. Corporate Update (29 September 2016), at 1. However, several bankruptcy courts have raised the possibility that ad hoc committees may have fiduciary duties. See, e.g., In re Washington Mut., Inc., 419 B.R. 271, 278 (Bankr. D. Del. 2009) (‘The case law, however, suggests that members of a class of creditors may, in fact, owe fiduciary duties to other members of the class.’); In re Northwest Airlines Corp., 262 B.R. 704, 708 (Bankr. S.D.N.Y. 2007) (noting that an ad hoc committee’s ‘negotiating decisions as a Committee should be based on the interests of the entire shareholders’ group, not their individual financial advantage’); see also David L Perechocky, ‘Should Ad Hoc Committees Have Fiduciary Duties?: Judicial Regulation of the Bankruptcy Market’, 86 Am. Bankr. L.J. 527, 532–33 (2012) (discussing that the Northwest Airlines and Washington Mutual cases raise the possibility that ad hoc committees have fiduciary duties).

[30] In re Washington Mut., Inc., 419 B.R. 271, 274–75 (Bankr. D. Del. 2009); Kevane, et al., op. cit. note 19, at 2.

[31] Kevane, et al., op. cit. note 19, at 2; Rosenberg, et al., op. cit. note 14, at 268.

[32] Rosenberg, et al., op. cit. note 14, at 271 (‘Ad hoc management is just that: ad hoc.’).

[33] Fliman and Sasson, op. cit. note 29, at 2.

[34] id.

[35] In re Washington Mut., Inc., 419 B.R. 271, 275 n.6 (Bankr. D. Del. 2009).

[36] ibid., at 270.

[37] Fischer, op. cit. note 28, at 88. Although larger institutions may be able to create an ethical wall so that they can receive confidential information without losing their ability to trade, hedge funds and other minimally staffed entities are unlikely to be able to do so. See Carren Shulman and Timothy Mehok, ‘Membership Has Its Privileges, Or Does It?’, Financier Worldwide (2007) (describing various ways to create ethical walls, including ‘employment of different personnel to perform certain functions, physically separating office and file space, locking committee files and using separate telephone and facsimile lines’).

[38] Rosenberg, et al., op. cit. note 14, at 272.

[39] id.

[40] ibid., at 279; Kevane, et al., op. cit. note 19, at 3; see also Evan D Flaschen and Kurt A Mayr, ‘Bankruptcy Rule 2019 and the Unwarranted Attack on Hedge Funds’, 26–27 Amer. Bankr. Inst. J. 16, 47 (2007).

[41] Bank Brussels Lambert v. Credit Lyonnais (Suisse) S.A., 160 F. 437, 448 (S.D.N.Y. 1995) (‘At its core, the “common interest” doctrine applies when multiple persons are represented by the same attorney. In that situation, communications made to the shared attorney to establish a defense strategy remain privileged as to the rest of the world.’) (citations omitted).

[42] Kevane, et al., op. cit. note 19, at 3.

[43] See Model Rule of Professional Conduct Rule 1.16(a)(1) (Am. Bar Ass’n 1983) (explaining that a lawyer ‘shall withdraw from the representation of a client if . . . the representation will result in violation of the rules of professional conduct or other law’); Model Rule of Professional Conduct Rule 1.7(a)(1) (providing that ‘a lawyer shall not represent a client if the representation involves a concurrent conflict of interest’ and that a ‘concurrent conflict of interest exists if . . . the representation of one client will be directly adverse to another client’).

[44] Kevane, et al., op. cit. note 19, at 3.

[45] See Rosenberg, et al., op. cit. note 14, at 279.

[46] See, e.g., Fischer, op. cit. note 28, at 88 (discussing that hedge funds often have holdings at multiple levels of a debtor’s capital structure, making it difficult for them to ‘fit neatly into the formal committee structure provided for by the Bankruptcy Code’).

[47] Fed. R. Bankr. P. 2019 advisory committee’s note to 2011 amendment.

[48] Fed R. Bankr. P. 2019.

[49] Fed. R. Bankr. P. 2019 advisory committee’s note to 2011 amendment.

[50] Fed R. Bankr. P. 2019(d).

[51] id.

[52] Fed R. Bankr. P. 2019(e).

[53] 11 U.S.C. § 503(b)(3)(D).

[54] 11 U.S.C. § 503(b)(4).

[55] In re Summit Metals, Inc., 379 B.R. 40, 50 (Bankr. D. Del. 2007).

[56] ibid., at 51 (quoting In re Gurley, 235 B.R. 626, 636 (Bankr. W.D. Tenn. 1999).

[57] See, e.g., In re Granite Partners, L.P., 213 B.R. 440, 445 (Bankr. S.D.N.Y. 1997) (‘compensation is limited to those extraordinary actions . . . that lead to an “actual and demonstrable benefit to the debtor’s estate, the creditors, and to the extent relevant, the stockholders”’) (citations omitted).

[58] See Summit Metals, Inc., 379 B.R. at 50 (citing Lebron v. Mechem Fin. Inc., 27 F.3d 937, 944 (3d Cir. 1994)); see also In re Lister, 846 F.2d 55, 57 (10th Cir. 1988) (‘Efforts undertaken by a creditor solely to further his own self-interest, however, will not be compensable, notwithstanding any incidental benefit accruing to the bankruptcy estate.’). But see Hall Fin. Grp. v. DP Partners, Ltd. P’ship (In re DP Partners, Ltd. P’ship), 106 F.3d 667, 673 (5th Cir. 1997) (noting that ‘nothing in the Bankruptcy Code requires a self-deprecating, altruistic intent as a prerequisite to recovery of fees and expenses under section 503’ and that the ‘benefits, if any, conferred upon an estate are not diminished by selfish or shrewd motivations’).

[59] In re M & G USA Corp., 599 B.R. 256, 262 (Bankr. Del. 2019) (highlighting that ‘a well-developed body of case law teaches that the sort of contribution that reaches the substantial threshold is exceedingly narrow’).

[60] id.

[61] ibid., at 259.

[62] id.

[63] ibid., at 260.

[64] id.

[65] id.

[66] id.

[67] id.

[68] ibid., at 261.

[69] id.

[70] id.

[71] id.

[72] ibid., at 263.

[73] id.

[74] id.

[75] id.

[76] id.

[77] id.

[78] id.

[79] id.

[80] ibid., at 263–64.

[81] ibid., at 264.

[82] id.

[83] id.

[84] ibid., at 264–65.

[85] ibid., at 263.

[86] ibid., at 264.

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