In a chapter 11 case for a church beset with sexual abuse claims, Bankruptcy Judge Meredith S. Grabill of New Orleans directed the appointment of an additional committee to represent commercial creditors, because she was “not convinced” that commercial creditors had a “meaningful voice” on the existing committee constituted entirely of abuse claimants.
Facing 34 suits for sexual abuse, the Archdiocese of New Orleans filed a chapter 11 petition. Initially, the U.S. Trustee appointed an official unsecured creditors’ committee with seven members, the indenture trustee for holders of $38 million in unsecured bonds and six individuals with sexual abuse claims.
For reasons not entirely clear in the February 8 opinion by Judge Grabill, the U.S. Trustee reformulated the committee by displacing the indenture trustee, who had worked out an interim settlement with the debtor.
However, the indenture trustee filed a motion under Section 1102(a)(2) asking Judge Grabill to direct the U.S. Trustee to appoint an additional committee to represent unsecured commercial creditors. That section gives the court discretion to appoint an additional committee “if necessary to assure adequate representation of creditors or of equity security holders.”
“Adequate representation” is not defined in the Bankruptcy Code, but courts have proposed seven factors to consider, Judge Grabill said. She granted the motion, noting that some sexual abuse reorganizations have only one committee while others have multiple committees.
The New Orleans church listed about 900 unsecured creditors with some $900 million in claims. “[B]ut the fact is,” Judge Grabill said, “that the interests of abuse claimants and standard commercial creditors are not the same.” For her, the question was whether the sexual abuse claimants on the committee “can satisfy the requirements for adequate representation.”
When there is a substantial amount of commercial debt, “it is also reasonable to expect that commercial creditors will either have a seat or seats on the committee, or else a second committee dedicated to protecting their diverse interests,” Judge Grabill said. In that regard, she noted that the chairperson of the existing committee was not opposed to appointing an additional committee but had concern for the time and cost resulting from the existence of two committees.
Being sensitive to the cost of a second committee, Judge Grabill said that “no evidence was put before the Court showing that the cost would be so burdensome as to justify denying representation to commercial creditors if this Court finds representation is needed.”
The removal of the indenture trustee from the committee was pivotal. Judge Grabill said:
Although the possibility existed at one time that commercial creditors had a meaningful voice on the Committee, the Court is not persuaded that they continue to have that voice on this Committee now that this Committee is comprised solely of Survivor Members.
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If any commercial creditors were members of the current Committee, the Court would have been inclined to appoint special counsel to work with those members to represent the interests of commercial creditors in this case. [Emphasis in original.]
Judge Grabill said that “the Abuse Claimants in this case, at times, may share interests with commercial creditors, [but] their interests often differ from the issues facing other creditors.” She was therefore “not convinced that the appointment of additional members to the existing Committee would provide commercial creditors with a meaningful voice.”
Judge Grabill exercised her discretion under Section 1102(a)(2) to direct the appointment of an additional committee, finding “that the value created will outweigh the costs.”
In a chapter 11 case for a church beset with sexual abuse claims, Bankruptcy Judge Meredith S. Grabill of New Orleans directed the appointment of an additional committee to represent commercial creditors, because she was “not convinced” that commercial creditors had a “meaningful voice” on the existing committee constituted entirely of abuse claimants.
Facing 34 suits for sexual abuse, the Archdiocese of New Orleans filed a chapter 11 petition. Initially, the U.S. Trustee appointed an official unsecured creditors’ committee with seven members, the indenture trustee for holders of $38 million in unsecured bonds and six individuals with sexual abuse claims.
For reasons not entirely clear in the February 8 opinion by Judge Grabill, the U.S. Trustee reformulated the committee by displacing the indenture trustee, who had worked out an interim settlement with the debtor.
However, the indenture trustee filed a motion under Section 1102(a)(2) asking Judge Grabill to direct the U.S. Trustee to appoint an additional committee to represent unsecured commercial creditors. That section gives the court discretion to appoint an additional committee “if necessary to assure adequate representation of creditors or of equity security holders.”
“Adequate representation” is not defined in the Bankruptcy Code, but courts have proposed seven factors to consider, Judge Grabill said. She granted the motion, noting that some sexual abuse reorganizations have only one committee while others have multiple committees.
The New Orleans church listed about 900 unsecured creditors with some $900 million in claims. “[B]ut the fact is,” Judge Grabill said, “that the interests of abuse claimants and standard commercial creditors are not the same.” For her, the question was whether the sexual abuse claimants on the committee “can satisfy the requirements for adequate representation.”