Creditors' Committee in Crosshairs of Detroit Bankruptcy Case

Attorneys representing the city of Detroit have asked Judge Steven Rhodes to dissolve the creditors' committee involved in the Chapter 9 bankruptcy there, arguing that it could stymie mediation efforts in the municipal bankruptcy, characterizing it as counterproductive, imprudent and unnecessary. Should Rhodes disband the committee, it could encourage attempts to disband committees in other bankruptcies of various types going forward.

However, while the NACM community has long supporter creditors committees in most situations, municipal bankruptcies are complex, especially in Detroit's case, and there could be some mitigating circumstances that make it a special situation. The motion to disband the committee is based on the fact that four of its five members are represented by counsel and actively involved in other mediation efforts, such as a retiree committee, in the case. The argument is that a creditors' committee in Detroit is akin to having a second bite of the apple, so to speak.

Granted, the city’s argument that it is financial imprudent is one that traditionally would be hard to argue, from the perspective of trade creditors. However, oddly, there seem to be no trade creditors engaged in the committee process. The judge is expected to rule on the matter during a February 19 hearing.

- Brian Shappell, CBA, CICP, NACM staff writer

For deeper expert legal and industry analysis on this topic, see the extend version of this story in this week’s NACM eNews, available now at (in the “Resources” section).

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