Official Equity Committees in Chapter 11 Cases

[...]a shareholder who owns a small percentage of stock in a large publicly held company can hardly afford to retain counsel who can competently contest a plan that proposes to eliminate all the old equity. [...]if one shareholder or even an ad hoc group of shareholders did this and succeeded, they...

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Bibliographic Details
Published inAmerican Bankruptcy Institute journal Vol. 36; no. 11; pp. 22 - 82
Main Authors Rothberg, Edward L, Brown, Deirdre Carey
Format Journal Article
LanguageEnglish
Published Alexandria American Bankruptcy Institute 01.11.2017
Subjects
Appointments & personnel changes
Attorneys
Bankruptcy
Bankruptcy laws
Bankruptcy reorganization
Committees
Conflicts of interest
Cost control
Directors
Equity
Fees & charges
Incentive plans
Insolvency
Institutional investments
Investments
Legal fees
Liability insurance
Professionals
Public companies
Shareholder voting
State court decisions
Stockholders
United States > US
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Summary:[...]a shareholder who owns a small percentage of stock in a large publicly held company can hardly afford to retain counsel who can competently contest a plan that proposes to eliminate all the old equity. [...]if one shareholder or even an ad hoc group of shareholders did this and succeeded, they would be benefiting other shareholders who will not be required to pay their fair share of the costs. [...]the reorganization plans in these large public company cases often provide broad general releases to officers and directors of both direct and derivative claims, with these same officers and directors at the helm of the plan-negotiation process, preventing the shareholders from even voting on the plan. [...]over the years, courts have imputed a series of "factors" to determine whether equity is "adequately represented" Some of these factors include the following: (1) whether the debtor is hopelessly insolvent; (2) whether equityholders are adequately represented by stakeholders already at the table; (3) the likely cost of an equity committee; (4) whether the shares are widely held and actively traded; and (5) whether it is practical to appoint an equity committee, among others.1 These factors, which go far beyond the statutory standard, appear to be practical in nature. [...]any plan that contemplates the termination of equity in a public company should allow for the following: (1) an auction procedure to prevent secured creditors from taking the equity at a bargain price or bargain valuation; and (2) the preservation of both direct and derivative claims for the benefit of creditors and equityholders.
ISSN:1931-7522