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Does Rule 2019 Apply to Ad Hoc or Informal Committees?

By Daniel J. DeFranceschi

The debate over whether ad hoc or informal committees or groups of creditors or interest holders (“ad hoc committees“) must comply with Bankruptcy Rule 2019 recently intensified due to a split among several Bankruptcy Court decisions. Previously, both In re Northwest Airlines Corp., 363 B. R. 701 (Bankr. S. D. N. Y. 2007), and In re Washington Mut. Inc., 419 B. R. 271 (Bankr. D. Del. 2009) (“WaMu“) held that ad hoc committees, actively participating in a case as a committee, were subject to Rule 2019. Following these decisions, many practitioners thought the law was settled ' ad hoc committees were required to file the requisite Rule 2019 disclosures ' while others continued the practice of not filing Rule 2019 disclosures or only filing partial Rule 2019 disclosures. Fueling the debate is the decision in In re Premier Int'l Holdings, Inc., 2010 WL 198676 (Bankr. D. Del. Jan. 10, 2010) (“Six Flags“), which disagreed with Northwest and WaMu, and held that an informal committee of noteholders was not a committee representing more than one creditor by consent or operation of law and therefore not subject to Rule 2019. Thereafter, In re Philadelphia Newspapers, LLC, 2010 WL 41102 (Bankr. E. D. Pa. Feb. 4, 2010), agreed with Six Flags, evenly splitting the reported decisions.

One side of the debate argues for increased disclosure of the kind of information covered by Rule 2019, consistent with the “open kimono“ policy of the Bankruptcy Code. To these advocates, providing such information will further level the playing field, presumably allowing parties in interest to negotiate with more pertinent information at hand, thereby resulting in better and more equitable distributions to all parties in interest. On the other side of the debate are those who seek to protect their confidential and proprietary trading information, and who outside the bankruptcy context carefully guard such information from disclosure. Those on this side of the debate argue that forcing disclosure of such information would actually result in reduced participation by various parties with available financing for Chapter 11 cases, to the detriment of debtors and their estates.

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