Ad Hoc Committees and the Misuse of Bankruptcy Rule 2019

Ad Hoc Committees and the
Misuse of Bankruptcy Rule 2019
Evan D. Flaschen and Kurt A. Mayr
Creditors have been forming groups since the early 1930s, and group
disclosure requirements have been around since the late 1930s. Today,
we have ad hoc committees/groups and Bankruptcy Rule 2019. 1 The
custom has been for counsel to ad hoc committees to make Rule 2019
filings that disclose the identity of the members of the committee and
their aggregate (but not individual) holdings. Two recent bankruptcy
court decisions have caused a re-examination of that custom and have
reached opposite conclusions. In so doing, they have opened up debates
both as to whether Rule 2019 applies to ad hoc committees and as to the
role of “hedge funds” in the Chapter 11 restructuring process. 2
The first decision was Northwest Airlines. 3 The decision mandates
that investors participating as members of ad hoc/informal committees/groups
must make extensive Rule 2019 public disclosure regarding
their claims/interests, including their complete trading histories in
the debtor’s securities. To some, the Northwest Airlines decision is an
appropriate weapon for attacking hedge funds that “want to wield enhanced
influence and bargaining power in a Chapter 11 case without
being subject to the statutory obligations borne by official committees
and the same degree of bankruptcy scrutiny.” 4 This article presents the
other side of the Rule 2019 debate, which recently prevailed in the Scotia
Development case, 5 where the court did not follow the Northwest
Airlines approach. In addition, this article takes exception with many of
the rationales that have been advanced as the “conventional wisdom” in
support of subjecting hedge funds to Rule 2019 disclosure.
Evan D. Flaschen and Kurt A. Mayr are members of the Financial Restructuring Group of
Bracewell & Giuliani LLP and represented the ad hoc noteholder group in the Scotia Development
case discussed in this article. An abridged version of this article was published in the
September 2007 issue of the ABI Journal, Vol. XXVI, No. 7. Reprinted with permission from
the American Bankruptcy Institute (www.abiworld.org).
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984 Norton Journal of Bankruptcy Law and Practice [Vol. 16]
THE RULE 2019 DEBATE IN A NUTSHELL
The heart of the Rule 2019 disclosure debate involves the interpretation
of the terms “committee” and “entity” as used in the rule. Rule 2019
only applies to parties that qualify as a “committee” or an “entity” representing
more than one creditor or equity security holder. 6 Although Rule
2019 and its predecessors have been around for almost 70 years, there
has been very little discussion concerning the specific applicability of
the rule. Instead, the customary and accepted practice has been for counsel
to ad hoc committees to file a disclosure identifying the members of
the committee and their aggregate (but not individual) holdings. There
have also been instances in mass tort cases where law firms have been
required to file detailed 2019 statements, but it has been in the context
of lawyers asserting that they represent hundreds or thousands of claimants,
prompting courts to seek back-up details to verify the assertions. 7
Recently, however, some have adopted a broader interpretation (e.g.,
Northwest Airlines, which many debtors now champion) to apply Rule
2019 to virtually any group that acts in a coordinated manner through
common counsel in a bankruptcy case. According to this interpretation,
all informal or ad hoc committees/groups must file extensive public
disclosures regarding the nature of their claims and a full trading history
of the timing and price of all acquisitions and dispositions of each
member’s claims/interests relating to the debtor.
RULE 2019’S ORIGINS
To appreciate fully the significance of the recent Rule 2019 controversy,
one must begin with the rule’s history.
Rule 2019 is the current version of a procedural rule that was first
promulgated approximately 70 years ago in response to abuses by socalled
“protective committees” in restructurings during the Great Depression
era. These abuses were chronicled in a series of reports submitted
by the Securities and Exchange Commission to the U.S. Congress
(the SEC Report). 8
“Protective committees” were nonstatutory committees organized by
insider groups dominated by the debtor and/or its investment bank and
institutional investors. The committees would solicit smaller investors
to enter into a “deposit agreement” (or other similar instruments, which
were rarely arms-length) pursuant to which the smaller investors would
deposit their securities, and then the “committee” would negotiate with
the debtor with little, if any, participation by the smaller holders that the
committee represented. 9 In smaller situations, the “protective committee”
could even be a single entity with deposited securities.

Ad Hoc Committees and the Misuse of Bankruptcy Rule 2019 985
The SEC Report states that the “deposit agreement”:
has in many respects been the foundation of the control which
[protective] committees dominated by the inside group have been
able to obtain over the security holders. It is this agreement that
has given the committees their unifying quality...[T]hese agreements
bind the depositor to go along with the Committee through
thick and thin. 10
Its “Conclusions and Recommendations” advised that:
It is essential that renewed emphasis be given to the fact that representatives
of security holders in reorganization occupy a fiduciary
position…The use of deposit agreements as means of preserving
or obtaining arbitrary and exclusive control over security holders
should not be permitted. 11
Notably, unlike today’s investment market that is dominated by sophisticated
fund managers and institutional investors, 70 years ago a
significant number of less sophisticated individual investors (or in today’s
parlance, “retail investors”) were actively involved in the bond
market. It was these investors that the SEC Report sought to protect, as
evidenced by the Congressional testimony of Justice William O. Douglas,
the SEC Chairman at the time:
There is at present the problem and the necessity of affording to the
individual investors of this country protection against a type of abuse
and exploitation with which existing legislation cannot cope—the
abuses on the part of protective committees in reorganization….
[C]ommittees have been sponsored by the management of the
debtor company or by the investment bankers, not by security
holders or their authorized representatives…. As a consequence
the debtors (which, in any realistic sense, means the corporate
management) together with the investment bankers for the corporation
have been able to control the effective formation and operation
of protective committees. The individual investor has had
little choice but to throw in his lot with committees sanctioned and
sponsored by banker-management groups….
I cannot emphasize too strongly that committee members are fiduciaries.
As such they owe exclusive loyalty to the class of investors
that they represent. They owe that class diligence, efficiency,
and single minded devotion. 12

986 Norton Journal of Bankruptcy Law and Practice [Vol. 16]
Congress adopted the SEC Report’s recommendation to combat
“protective committees” by adopting § 210 and § 211 of Chapter X of
the Bankruptcy Act, which subsequently were combined in the form of
Rule 10-211 (under Chapter X), the text of which is virtually identical
to Bankruptcy Rule 2019. 13
BANKRUPTCY RULE 2019
Rule 2019 provides, in relevant part, that:
every entity or committee representing more than one creditor...
shall file a verified statement setting forth (1) the name and address
of the creditor...; (2) the nature and amount of the claim or interest
and the time of acquisition thereof...; (3) a recital of the pertinent
facts and circumstances in connection with the employment of the
entity or entities at whose instance, directly or indirectly, the employment
was arranged or the committee was organized or agreed
to act; and (4) with reference to the time of the employment of
the entity, the organization or formation of the committee ... the
amounts of claims or interests owned by the entity, the members of
the committee ... times when acquired, the amounts paid therefore,
and any sales or other disposition thereof. The statement shall include
a copy of the instrument, if any, whereby the entity, committee,
or indenture trustee is empowered to act on behalf of creditors
or equity security holders. 14
AD HOC GROUPS AND RULE 2019—THE NORTHWEST
AIRLINES DECISION
Holders and purchasers of distressed securities frequently form unofficial
or ad hoc groups in connection with Chapter 11 cases. These informal
arrangements permit parties with similar interests to coordinate
action and, where there is group consensus, to speak with one voice
through common counsel. It also permits the group to share the professional
fees and other costs of such participation, thus both achieving the
economies of shared expense and avoiding the inefficiencies of separate
counsel for similarly situated creditors. These ad hoc groups are often
formed before a bankruptcy filing—very often at the debtor’s request—
for the purpose of facilitating restructuring discussions that may or may
not involve an eventual bankruptcy filing.
The ad hoc nature of such groups typically means that they rarely
involve any duties relating to group membership other than privilege,
confidentiality and sharing expenses. Members are typically free to join
and withdraw as they see fit and are not individually bound by any deci-

Ad Hoc Committees and the Misuse of Bankruptcy Rule 2019 987
sion of the majority of the group. Unlike “protective committees” of the
past, ad hoc groups cannot (and do not purport to) represent the rights
of any party who is not a member of the group. Further, despite the fact
that these groups are often referred to as ad hoc “committees,” many
practitioners have always believed that Rule 2019 was not intended to
apply to these informal groups because they do not act in a representative/fiduciary
capacity. Nonetheless, counsel to ad hoc groups customarily
file voluntary Rule 2019 statements disclosing the identity of the
group’s members and their holdings in the aggregate so that other parties
in the case can be assured of the make-up and size of the group.
Because of this well-established practice, in the approximately 70
years since the promulgation of the predecessor to Rule 2019, only a
few courts had addressed Rule 2019 in the context of a law firm representing
multiple creditors, 15 and no court prior to the Northwest Airlines
decision had issued a published decision applying Rule 2019 to
an ad hoc committee. Thus, the Northwest Airlines decision’s sudden
mandate of extensive public disclosures was a surprise. According to
the Northwest Airlines decision, Rule 2019 requires each member of an
ad hoc committee to publicly disclose its specific holdings as well as
the timing and amount paid to acquire such holdings. In addition, Rule
2019 is a continuing disclosure rule that, when applicable, requires periodic
updates of the disclosure as members of the group purchase or
sell holdings. The Northwest Airlines court rejected the notion that Rule
2019 only applied to committees (like “protective committees”) that
acted in a representative and fiduciary capacity. Instead, the court concluded
that the rule applied to any collective action where the committee
sought to be “taken seriously” in the bankruptcy process.
The Northwest Airlines decision was heavily fact-specific, but the
decision does not appear to be limited to the Northwest Airlines facts.
Instead, read most broadly, the decision could apply to virtually any
group of parties (clearly not just hedge funds) who act in a coordinated
manner through common counsel. Needless to say, the Northwest Airlines
decision “sent shock waves through the distressed debt community”
16 and led to concerns that it “is likely to be used by other debtors
as a tool against ad hoc groups in future cases.” 17
THE SCOTIA DEVELOPMENT DECISION
Investors’ concerns were quickly validated in In re Scotia Development
where the debtor, Scotia Pacific Company LLC (Scopac), wasted
no time in raising the Northwest Airlines decision against an organized
group of its public noteholders.

988 Norton Journal of Bankruptcy Law and Practice [Vol. 16]
Scopac is a special purpose entity that was created to own and operate
approximately 210,500 acres of timberland that it acquired with
$876 million raised from the issuance of timber notes. When Scopac
encountered financial difficulty in early 2005, Scopac requested holders
of the timber notes to organize an ad hoc committee to negotiate with
Scopac. At the time of Scopac’s bankruptcy filing in January 2007, the
group had grown to approximately 95% of the outstanding principal
amount of the timber notes.
Although the members of the noteholder group and their aggregate
holdings were repeatedly identified and updated in court pleadings,
Scopac cited the Northwest Airlines decision as the basis for asserting
that the members of the group were “hiding behind a veil of secrecy”
and should be compelled to make detailed public disclosure as to their
individual trading histories, including prices paid and received. 18 Absent
such disclosure, Scopac (like Northwest) requested the court to order
that the noteholder group “should not be heard further in this case.” 19
The bankruptcy court denied Scopac’s motion. In so doing, the court
agreed with the noteholder group (which argued substantial factual distinctions
with the Northwest Airlines situation and also advanced several
legal theories not presented in Northwest Airlines) that Rule 2019 was
not applicable to the ad hoc group. The court’s decision took the form
of two unpublished bench rulings (an original ruling denying Scopac’s
motion to compel 20 and a subsequent denial of Scopac’s motion for reconsideration,
21 which has not been appealed) with two principal holdings:
(a) the term “committee” under Rule 2019 does not include informal
groups, such as the timber noteholder group, that do not purport to
represent anyone other than themselves; and (b) even if such informal
groups were “committees” under Rule 2019, the court would exercise its
discretion permitted by the rule to dispense with the rule’s compliance
beyond the traditional Rule 2019 practice of disclosing the identity of
the group’s members and their aggregate (but not individual) holdings.
This is the correct result for numerous reasons. To begin with, a careful
analysis of the plain meaning of Rule 2019 confirms that the rule
does not extend to informal creditor groups. The fact that ad hoc groups
often colloquially describe themselves using the term “committee” cannot
be considered dispositive, any more than a creditor calling itself
“secured” means that it must be treated as a “secured” creditor within
the meaning of the Bankruptcy Code. In fact, legal and general dictionary
definitions of the term “committee” consistently contemplate a body
that is appointed/elected to act in a representative/fiduciary capacity for
a larger universe of stakeholders than the committee’s members. 22

Ad Hoc Committees and the Misuse of Bankruptcy Rule 2019 989
The concept of acting in a “representative capacity” on behalf of others
is at the heart of Rule 2019. 23 Indeed, it is explicitly stated in the
most important part of Rule 2019(a), its first clause, which defines the
parties who are subject to the substantive disclosure obligations set forth
in clauses (1) through (4) that follow. That introductory clause states
that it applies to every “committee representing more than one creditor”
except for official statutory committees. This is further supported by the
fact that the word “represent” and variations thereof is used in many
places in the Bankruptcy Code, and in each place it is clear that the term
is used consistent with someone who represents someone else. 24 Similar
to the definition of “committee,” the legal and general dictionary definitions
of “represent” contemplate a delegation of authority and acting
in the capacity as an “agent” for another. 25 This is consistent with the
limited jurisprudence regarding Rule 2019. 26 Ad hoc groups of investors
do not act for anyone other than the group’s members and clearly
do not serve as “agents” or “fiduciaries” to any party, even if they do
casually refer to themselves as a “committee.” Thus, as the Supreme
Court has instructed, the plain meaning of the rule must control, and it
simply does not apply to ad hoc groups. 27
Even if the term “committee” were ambiguous, Rule 2019’s legislative
history leaves no doubt that it was promulgated to protect small
investors from “protective committees” that acted in a “representative
and fiduciary” capacity during the Great Depression. Moreover, Bankruptcy
Rule 1001 mandates that the Bankruptcy Rules “shall be construed
to secure the just, speedy, and inexpensive determination of every
case and proceeding.” 28 An overly broad interpretation of the term
“committee,” such as that adopted in Northwest Airlines, would neither
be “just” nor would it promote speed and efficiency. As discussed
below, a broad interpretation would inappropriately empower debtors
to wield Rule 2019 as a weapon to discriminate against stakeholders
with whom they disagree. Moreover, litigation regarding Rule 2019 and
likely creditor responses (such as ceasing collective action and instead
operating separately through individual counsel in bankruptcy cases)
would unnecessarily increase the cost of bankruptcy to creditors and
result in numerous duplicative filings on even the simplest of issues. 29
As noted by the Seventh Circuit Court of Appeals in another context,
“Coordination is especially common in bankruptcy, which often is described
as a collective proceeding among lenders.” 30
In addition, even if the term “committee” were deemed to apply to
ad hoc groups, the rule should not be applied to such groups in the manner
requested by the debtors in Northwest Airlines and Scotia Development.
In both cases, the debtors requested that the bankruptcy court

990 Norton Journal of Bankruptcy Law and Practice [Vol. 16]
preclude the respective ad hoc groups from any further participation in
their Chapter 11 cases unless the groups’ members provided the Rule
2019 disclosure demanded by the debtors. As discussed below, such an
application of the rule would improperly allow a mere procedural rule
to abridge the numerous substantive rights of the investors in violation
of Congress’s directive that the Bankruptcy Rules “shall not abridge,
enlarge, or modify any substantive right.” 31
What makes this judicial intrusion upon investor rights particularly
unreasonable (and potentially unconstitutional) is the fact that neither
the integrity of the bankruptcy process nor the debtors could have any
legitimate use for the information that they now seek under Rule 2019.
It is well-settled that similarly situated creditors cannot be treated differently
based upon the price that they paid for their claims. 32 Perhaps
a reason for disclosing trading history would be if the ad hoc group had
actual authority to bind other creditors in the same class as the group’s
members, or otherwise had fiduciary duties to them, in which event it
might be reasonable that those other creditors should be entitled to seek
disclosure of the information to ensure that they were being fairly represented.
Even then, however, official committees make no such public
disclosure even though they clearly owe fiduciary duties to the class of
creditors or equity interest holders they represent. In any event, as noted
above, ad hoc groups never (in the authors’ experience) have actual
authority to bind anyone and have not been held to have fiduciary duties
to anyone, so there is no legitimate reason to compel them to make
greater disclosure than other creditors and even the official creditors’
committee in the case.
As discussed below, the other reasons advanced for applying Rule
2019 to ad hoc groups similarly ring hollow.
Without a reasonable or “rational basis” for applying the rule, it
cannot pass muster under 28 U.S.C.A. § 2075 and implicates constitutional
rights. To begin with, a remedy that would preclude the group’s
members from protecting their interests in the case would violate their
participation rights under Bankruptcy Code § 1109(b) 33 and could affect
the members’ “due process” rights under the Fifth Amendment to
the U.S. Constitution. 34 Moreover, in the Scotia Development case, the
noteholders held secured claims that are property interests further protected
against a judicial taking by the Fifth Amendment. 35 Regardless
of whether Rule 2019 could be applied to result in an actual violation of
either prong on the Fifth Amendment, the point is that due process and
property rights are fundamental to our society, and creditors should not
casually be denied equal access to the court to “enforce” a procedural
rule to require disclosure of legally irrelevant information.

Ad Hoc Committees and the Misuse of Bankruptcy Rule 2019 991
This is not simply a question of stubbornness. Investors who purchase
debt on the secondary market have proprietary and highly confidential
methodologies for determining which securities they will buy and the
timing and price for the purchase of such securities. Bankruptcy Code
§ 107(b) should be interpreted as protecting against disclosure of such
information, consistent with the protections of the First Amendment. 36
While speech can be compelled under certain circumstances, it should
not be compelled where the rule advances no legitimate or rational governmental
purpose and where no other creditor and not even the official
creditors’ committee is required to make such disclosure publicly.
In addition, the debtors in both Scotia Development and Northwest
Airlines appear to have invoked Rule 2019 as a sword to attack ad hoc
investor groups that did not defer to the debtors’ reorganization strategies.
This attack took the form of seeking to judicially extract extensive
public disclosure of confidential proprietary information that was not
requested by any actual investor nor was it requested from any other
stakeholder or any official committee. Such a discriminatory use of
Rule 2019 for no legitimate purpose implicates the basic tenet of equal
treatment that underlies bankruptcy law and the U.S. Constitution. 37
For all of the same reasons, courts also have the power to exercise
their discretion under Rule 2019’s express language (which is permissive)
and Bankruptcy Code § 105(a) 38 to limit enforcement of Rule
2019 to the information that has historically been provided as a generally
accepted practice over the last 70 years. 39 This was the alternative
holding in the Scotia Development case.
RULE 2019 DOES NOT APPLY TO AD HOC COMMITTEE
COUNSEL EITHER
The above discussion focuses on the term “committee” in Rule 2019,
but Rule 2019 also applies to an “entity...representing more than one
creditor.” The term “entity” has traditionally been interpreted as applying
to a law firm representing multiple creditors, but this is also incorrect
except under very narrow circumstances. 40
As the legislative history discussed above makes clear, Rule 2019 is
aimed at persons having the delegated authority to act on behalf of a
larger group. Lawyers are attorneys-at-law, not attorneys-in-fact. They
advocate their clients’ positions but they do not make their clients’ decisions
unless they have an express power of attorney to do so. 41 In the
asbestos cases, various law firms purported to have powers of attorney
to act on behalf of thousands of asbestos claimants, and therefore it was
appropriate to require the law firms to comply with Rule 2019 because

992 Norton Journal of Bankruptcy Law and Practice [Vol. 16]
they were acting in a truly “representative” capacity within the meaning
of Rule 2019 and its legislative history.
The term “entity,” therefore, should not be interpreted as encompassing
law firms (or financial advisers or other professionals) that are not
acting pursuant to powers of attorney. Instead, the term only encompasses
situations where a single person has representative authority,
rather than a “committee” of persons. A specific example of this, which
Rule 2019 identifies by name, is an indenture trustee, but other examples
would include a bank agent with contractual authority to bind the
loan participants, an asbestos lawyer with powers of attorney, and an
industry organization with authority to bind trade creditors or employees
or retirees.
This interpretation is reinforced by Rule 2019 itself. For example,
part (a)(3) of Rule 2019 focuses on “the employment of the entity or indenture
trustee.” This equates “entities” with “indenture trustees.” Also,
part (a)(4) of Rule 2019 contemplates disclosure of “the amounts of
claims or interests owned by the entity,” which would be meaningless if
“entity” meant “law firm” but is meaningful if “entity” is intended as a
“single representative” version of a “committee.”
Further, the sentence following part (a)(4) of Rule 2019 contemplates
disclosure of “the instrument, if any, whereby the entity, committee or
indenture trustee is empowered to act on behalf of creditors.” This hearkens
directly back to the “deposit agreements” that were the target of
the original SEC Report and refers literally to the document that gives
the entity, committee, or indenture trustee the legal power to act on
behalf of the creditors that it purports to have authority to bind. 42 An
engagement letter for a law firm does not do this, only a power of attorney
does.
Finally, there is a fundamental misconception about the role of law
firms for ad hoc committees. The law firm does not typically represent
the individual members of the group—it only represents the consensus
interests of the group as a whole. Appearances and pleadings are filed in
the name of the group, not its individual members. Positions are advocated
on behalf of the group only, such that individual group members
are always free to file separate pleadings advocating different positions.
From the law firm’s perspective, it is also critical that its client is
the group as a whole and not its individual members. Otherwise, counsel
could have a duty to advise the group members individually, even
where their interests diverge, which could result in a clear conflict of
interest. Also, the group could be considered to have dissolved each
time a member left the group, which makes no sense, and there may
also be attorney-client privilege implications. Thus, applying the words

Ad Hoc Committees and the Misuse of Bankruptcy Rule 2019 993
of Rule 2019, even if counsel can be an “entity,” group counsel does
not represent “more than one creditor,” it only represents a single entity—the
group itself, just as counsel to an official committee represents
the committee as a whole but not its constituent members.
One final point is worth noting. If counsel to an ad hoc group is
deemed a reporting “entity” under Rule 2019, the same must also be
true for counsel to an official committee. Rule 2019 only excepts from
its application the official committee itself. There is no language that
similarly excepts the “entity” that represents the official committee. The
reason for this, of course, is that “entity” is used to refer to agents or
representatives with the duty and binding authority to make decisions
on behalf of others, not to law firms who have a duty and are bound to
act only in accordance with the decisions of others (their clients).
SO WHAT IS ALL THE FUSS ABOUT
So there is a split of authority regarding Rule 2019’s applicability to
ad hoc investor groups, but what is all the fuss about From the debtor’s
perspective, this is a way to muffle the voice of one of their largest creditor
constituencies because the debtor does not agree with the typically
more aggressive perspective of secondary market investors and knows
that compelled disclosure of trading histories will cause many investors
to shy away from group participation. From the investors’ perspective,
this is a crucial issue relating to their ability to protect their interests
on a coordinated and cost-effective basis while maintaining the confidentiality
of their sensitive and proprietary business information and
strategy. A rule (like Northwest Airlines) that would require investors
to publicly disclose the amount of their current investments and their
prior and prospective trading histories (acquisitions and dispositions) in
such investments would undermine their ability to compete in a market
where no other investor is required to disclose such information. Notably,
the federal securities laws that Congress has enacted to regulate
the markets for public securities do not impose any similar obligation
on individual investors or groups except for some limited reporting obligations
for regulated investors related to shareholdings that exceed a
certain percentage of the debtor’s outstanding equity.
In addition, investors are understandably concerned about any procedural
rule that debtors can try to use as a weapon to seek leverage
in a bankruptcy case, and they have good reason for concern. Scopac
wasted no time in invoking the Northwest Airlines decision against its
investors. It did this despite the fact that the noteholder group held in
excess of 95% of the timber notes and had been formed at Scopac’s
request. Scotia Development will not be a unique case. Indeed, one

994 Norton Journal of Bankruptcy Law and Practice [Vol. 16]
leading debtor law firm proclaimed that the Northwest Airlines decision
“may signal the beginning of the end of certain of today’s influential ad
hoc committees.” 43
Implicit in the position favoring the Northwest Airlines approach is
the assumption that secondary market investors are destructive participants
in the Chapter 11 process and, therefore, should be silenced
whenever possible. However, as discussed below, each of the rationales
supporting this anti-hedge fund bias is fundamentally flawed and simply
cannot change the plain meaning of a 70-year old procedural rule.
Reason # 1: Rule 2019 will curb the “influence” of hedge funds in the
bankruptcy process
This overgeneralization is then coupled with one or more of the other
reasons discussed below, which are viewed as being “hedge fund specific.”
Nobody can seriously argue that Rule 2019 only applies to hedge
funds, or to hedge funds acting as a group. The language of the rule
does not support any such construction nor does its legislative history,
which predates the modern hedge fund phenomenon. The language applies
to any aggregation of “more than one creditor or equity security
holder,” whether par or secondary investor, regulated or unregulated,
legal person or natural, institutional or private. The language applies
equally to (among others) banks, insurance companies, mutual funds,
pension funds, employees, retirees, trade creditors, regulatory authorities
and individuals.
Moreover, firmly embedded in this logic is an assumption that hedge
funds are somehow a corrosive influence on the bankruptcy process.
The flaws in this assumption far exceed the limited scope of this article,
but it is worth noting that it ignores the fact that hedge fund participation
in the distressed markets provides an essential source of liquidity
for investors seeking to exit investments in financially distressed
companies. The secondary market also ensures that participants in the
Chapter 11 process consist of those persons who desire to participate,
rather than legacy creditors who often want to exit as quickly as possible
and will remain silent in the meantime.
The truth is, there are only two major participants in the bankruptcy
process (not including judges or U.S. Trustees) who often argue that
hedge funds are corrosive. The first is the debtor, who would often like
nothing more than to chart its own restructuring course on its own terms
and timetable with the complicity of a conflicted creditors’ committee. 44
Debtors sometimes resent hedge funds because they are true economic
creatures who focus on maximizing the value of the business as it exists
today, rather than seeking to protect the “sacred cows” of the past,

Ad Hoc Committees and the Misuse of Bankruptcy Rule 2019 995
to preserve credit relationships going forward, or to maintain management’s
employment in the future.
The second are existing par creditors who paid face value for their
claims and are still involved in the process. Their concerns are far more
understandable – will a hedge fund be more interested in making a
quick buck based on the discounted price it paid rather than in seeking
a higher recovery over time However, this must be balanced against
two factors; first, that those same existing creditors greatly welcome
the liquidity of their claims that the secondary market provides, and
second, that not all hedge funds are alike. To be sure, some hedge funds
are short-term investors looking for a quick recovery, and some hedge
funds cane, in fact, be disruptive players. Other hedge funds, however,
are medium term investors looking for a recovery over time and still
others are long-term investors looking to convert their debt into equity.
Regardless of their investment strategy, however, hedge funds all look
to maximize recovery just as institutional investors do, and the issue is
not what they paid for their claim but what they can get for it, whether
that means a 10% return or a 200% return (or 90% loss). The fact that
they are some disruptive apples should not mean that the full barrel is
rotten—quite the opposite.
Thus, in reality, there is plenty of room at the table for institutional
investor, commercial lender, trade creditor, and hedge fund alike, and it
is really the debtor that primarily opposes the participation of secondary
market investors in the reorganization process.
Reason # 2: Rule 2019 protects other investors’ rights in the same
investment
Inherent in this rationale is an assumption that ad hoc groups can somehow
bind other investors in the same securities. However, in contrast to
the “protective committees” that Rule 2019 was designed to regulate, a
central feature of ad hoc groups is that they act only in the interest of their
members and do not (and cannot) purport to represent any other stakeholder’s
interests. Unlike “official” committees that serve in a fiduciary
capacity, ad hoc groups are not agents or fiduciaries. Investors outside the
group cannot justifiably rely upon the group to protect their interests. That
is what the bankruptcy process is for. Ample notice, an opportunity to be
heard, and the right to vote one’s own claim are afforded to all stakeholders,
regardless of whether an informal group is active in the case.
In fact, in the case of an ad hoc group of public noteholders (a/k/a
“bondholders,” a common type of ad hoc group), the law is abundantly
clear that the group has no ability to bind other bondholders. TIA § 316(b)
clearly mandates that no bondholder’s right to repayment can be affected

996 Norton Journal of Bankruptcy Law and Practice [Vol. 16]
without its consent. 45 The only exception to this is the right of statutory
majorities to bind dissenting creditors under a Chapter 11 plan of reorganization,
but it is the vote of the creditors and the approval of the court
that counts, not the position advocated by any ad hoc creditor group.
To imply otherwise, as the Northwest Airlines decision did, creates
a slippery slope that could lead to assertions that ad hoc groups act as
fiduciaries or are otherwise accountable to other investors beyond the
traditional rules of securities regulation and common law fraud. Indeed
some have interpreted Northwest Airlines as meaning that “if committee
members want the benefit of collective participation, they must accept a
fiduciary obligation to the class and disclosure rules must be complied
with.” 46 The compelling response to this is that committee members do
not want the benefit of collective participation beyond the ability of any
other creditor or group of creditors to represent its own interests and to
vote its own claims.
What ad hoc committee members do want, and what they have a right
to expect, is that, if they are among the largest creditors in a particular
class of claims and they hold a blocking position or consent vote, the
debtor should consider their input before proposing a plan that affects
their claims. Far from being pernicious, this is precisely what bankruptcy
should be about—a negotiated approach to reorganization that is ultimately
put to the vote of all creditors for final approval or disapproval.
Moreover, if this is the rationale for applying Rule 2019 and for
seeking to impose fiduciary duties, it necessarily follows that a single
creditor who holds a blocking or consent position must also have fiduciary
duties to others in the same class. The analysis should be the same
whether it is one large creditor or a group of creditors that is collectively
large, yet the absurdity of asserting that an individual creditor has a
fiduciary duty to anyone but itself underscores the fundamental flaw of
seeking to impose a fiduciary duty on a group of creditors acting solely
in their own interests.
Finally, if Rule 2019 is designed to protect other investors, then (from
an Article III “case or controversy” perspective) it is only those “other
investors,” not the debtors, who should have the right to seek to enforce
Rule 2019. 47 Yet it was only the debtors in Northwest Airlines and Scotia
Development that sought to invoke the rule, suggesting that their
intentions were a far cry from “protecting investors.”
Reason # 3: Rule 2019 holds hedge funds to the same rules as other
bankruptcy participants
This is also just plain wrong. No other creditor or shareholder in a
bankruptcy proceeding is required to make the kind of detailed disclo-

Ad Hoc Committees and the Misuse of Bankruptcy Rule 2019 997
sures that are now suddenly being demanded of ad hoc investor groups
under Rule 2019. Indeed, even members of official committees are not
expected to disclose publicly the amount of their holdings (other than
to the U.S. Trustee at the time of committee formation), let alone their
trading histories.
While it is true that many creditors must file individual proofs of
claim asserting their claim amount, they are not required to state the
value of the consideration that they paid for the claim or their entire
trading history in that claim and others of the same class. In the case of
bond debt and syndicated loans (the most common claims represented
by ad hoc groups), the proof of claim is filed by the indenture trustee or
administrative agent. There is no issue regarding the consideration paid
for the claim—it is the aggregate amount loaned to the debtor minus any
repayments. Rule 2019 seeks to drill down beneath this layer of information—which
is the only information fundamentally relevant—to require
individual bondholders/participants to provide details regarding their
subsidiary interests in the global loan/note, including a detailed trading
history regarding all acquisitions and dispositions of such interests. No
other party is required to make this kind of disclosure in bankruptcy.
In other words, the Northwest Airlines interpretation of Rule 2019
does not “level the playing field” at all; it tilts it against investors who
participate in ad hoc groups in an irrationally discriminatory manner.
Reason # 4: Disclosure is necessary to understand hedge fund
motivations
Hedge funds, like all other investors, desire to maximize the return
on their investment. This is no secret, and it is a bankruptcy truism that
all stakeholders (whether acting individually or collectively) seek the
highest possible return for themselves. For some, this return focuses
purely on the maximum current economic recovery. For others, this return
focuses on the maximum long-term economic recovery. For others
still, the focus is on a combination of value and liquidity. Also, the
foregoing do not include the other nonmonetary return considerations
relevant to many trade creditors, landlords, equipment lessors and lessees,
regulatory authorities, employees, etc.
In sum, hedge funds are just like other participants in the process.
They are individual stakeholders who have individual needs and individual
motivations based on a great variety of factors that may or may
not coincide with the needs and motivations of any other hedge fund or
any other stakeholder. And, yes, hedge funds can sometimes be disruptive
participants, but so can landlords and lessors who demand return of
their property, trade creditors who seek immediate enforcement of rec-

998 Norton Journal of Bankruptcy Law and Practice [Vol. 16]
lamation rights, creditors’ committees who seek to subordinate secured
claims, and debtors who engage in scorched-earth litigation tactics. It is
all part of the Chapter 11 dynamic.
A variation on this theme is the argument that hedge funds are “different”
because they can sometimes participate in more than one level
of the debtor’s capital structure, and therefore their motivations are “different.”
This may be true, but so what Commercial banks can be both
lenders and shareholders; insurance companies can be both bondholders
and insurers; trade creditors can be secured, unsecured, and priority;
and individuals can be creditors, employees, and shareholders all at the
same time. All this does is reinforce the point that every creditor has its
own motivations, regardless of whether disclosed, and every creditor is
entitled to act in its own interests. Whether that creditor acts on its own
or as part of a group acting in the interests of its own members, there
cannot be anything wrong with this unless the creditor publicly purports
to act on behalf of other creditors or to have a duty to them, as is the
case with official creditors’ committee members. Even with creditors’
committees, only the U.S. Trustee is privy to any multiple positions that
a creditor may hold at the time that it seeks appointment, as there is no
requirement for public disclosure of this information even for this type
of clear fiduciary.
This theory also posits that there is a danger that a hedge fund might
take action to maximize recovery on a particular investment that might
reduce its recovery on another investment and thereby somehow prejudice
other investors in the latter investment. Again, this theory is based
upon the false premise that investors somehow owe a duty to other investors
when they act as an ad hoc group. There is no such duty. Outside
of bankruptcy, ad hoc groups can exist and the members of the group can
own different investments in the same debtor’s capital structure without
having to disclose any such investment other than to the limited extent
required by state and federal securities laws. Bankruptcy should be no
different. There is nothing illegal or unethical about having a diverse
investment portfolio. And there is nothing illegal or unethical in voting
one’s bankruptcy claims in furtherance of one’s own economic interest.
Reason # 5: Rule 2019 protects against misuse of confidential
information
Rule 2019, a mere procedural rule, has nothing to do with the use of
confidential information. Contract law, common law fraud, and, where
applicable, the state and federal securities laws regulate the misuse of
material, nonpublic information by investors. In bankruptcy, improper
use of confidential information may also raise vote designation and/or

Ad Hoc Committees and the Misuse of Bankruptcy Rule 2019 999
equitable subordination issues, but the right to compel disclosure of
the investor’s information in that context flows from normal discovery
rules applicable to contested matters where there is a non-frivolous
basis to believe that an investor has actually done something wrong.
Rule 2019 cannot be used as a preemptive discovery device based upon
the presumption that all ad hoc group members are likely to misuse
confidential information. This rationale again diverts attention from the
real disclosure issue: it is the debtor (not the investors from whom the
debtor has raised funds) that has the primary disclosure duties under the
applicable bankruptcy and securities laws.
Reason # 6: Ad hoc groups seek to be taken seriously
The Northwest Airlines decision states that ad hoc groups use their
ability to speak as a collective voice so that they will be taken seriously
by the bankruptcy court and other parties-in-interest and, therefore, they
should be required to make Rule 2019 disclosures. Respectfully, this is
a non sequitur. Every party in a bankruptcy proceeding seeks to be taken
seriously—this cannot be the basis for imposing extensive disclosure
obligations regarding confidential and proprietary information. Further,
ad hoc groups seek a voice proportionate to the amount of claims in the
group, not the number of group members. Stated differently, it is not
particularly relevant whether a “voice” consists of one holder of a debt
issue or 100 holders. What is vitally relevant, however, is whether that
one holder (or those 100 holders) collectively have the dollars needed
either to satisfy the statutory percentage in amount of those voting in
order to consent to the treatment of a class or the dollars needed to
block the consent by others to a particular treatment. In other words,
it is “might that makes right,” not noise, and whether that “might” is
concentrated in a single large creditor or in a group of smaller creditors
should make no difference as to how seriously that creditor or that
group should be taken.
CONCLUSION
Bankruptcy Rule 2019 exists for a reason. If an entity or a committee
asserts that it has the legal power to bind others, then that entity or
committee has a fiduciary duty to those others and ought to make appropriate
disclosure to those others to ensure that they are being fairly represented
(which makes it all the more curious that official committees
are excepted from Rule 2019). The rule has nothing to do with creditors
who desire to speak for themselves, and only for themselves, in a collective
manner (nor does it have anything to do with group counsel). They
owe no fiduciary duties to others outside the group or even to others

1000 Norton Journal of Bankruptcy Law and Practice [Vol. 16]
within the group; they are motivated by their own selfish considerations
in the same sense that debtors and other creditors are motivated by their
own selfish considerations; and they are as constructive or destructive
to the process in the same sense that debtors and other creditors can be
constructive or destructive.
In truth, the battle is not really about Rule 2019 at all: the rule is simply
the latest weapon in the arsenal that debtors seek to employ against
the owners of their debt, particularly those owners who tend to be more
assertive about their economic views. However, it is surely a losing
battle. Secondary market investors, including hedge funds, are here to
stay, and their votes will often be determinative as to whether a particular
class consents to a particular plan of reorganization. So debtors can
choose to fight with hedge funds all they want, and hedge funds can
choose to fight back. In the end, however, the quickest and most effective
reorganizations are typically accomplished on a consensual basis,
and debtors should welcome the participation of a sophisticated group
of creditors that collectively has substantial voting power rather than
seeking to fight those creditors at every turn.
NOTES
1. Fed. R. Bankr. P. 2019.
2. “Hedge funds” in this context is a loosely-used term to encompass more generally the
universe of “distressed investors” that includes actual hedge funds, investment bank proprietary
desks, alternative investment managers, and other funding sources that purchase stressed or
distressed debt or equity on the secondary markets.
3. In re Northwest Airlines Corp., 363 B.R. 701, 47 Bankr. Ct. Dec. (CRR) 248 (Bankr.
S.D. N.Y. 2007).
4. Paul D. Leake & Mark G. Douglas, Ad Hoc Committee Disclosure Requirements–A
Bitter Pill to Swallow for Distressed Investors, Jones Day Bus. Restr. Rev. May/June 2007, at
4, 4; see also Mark Berman & Jo Ann J. Brighton, Will the Sunlight of Disclosure Chill Hedge
Funds, Am. Bankr. Inst. J., May 2007, at 24.
5. In re Scotia Development LLC, Case No. 07-20027 (Bankr. S.D. Tex. Apr. 18, 2007)
(order denying motion to compel), recons. denied (May 29, 2007) (order denying motion for
reconsideration). How and why a California company owning Northern Californian timberlands
ended up choosing Corpus Christi, Texas for its bankruptcy filing is an interesting story in and
of itself, but one for another day.
6. The rule also applies to “indenture trustees.”
7. See, e.g., Baron & Budd, P.C. v. Unsecured Asbestos Claimants Committee, 321
B.R. 147, 53 Collier Bankr. Cas. 2d (MB) 1159, 61 Fed. R. Serv. 3d 42 (D.N.J. 2005) (law
firms representing multiple asbestos claimants required to disclose co-counsel and fee-sharing
relationships and arrangements); In re Owens Corning, Case No. 00-3837 (Bankr. D. Del. Oct.
22, 2004) (revised order requiring filing of Rule 2019 statements; permitted all information
other than identity of group members to be filed confidentially).
8. See Report on the Study and Investigation of the Work, Activities, Personnel and
Functions of Protective and Reorganization Committees (1937).
9. See Charles Jordan Tabb, The History of the Bankruptcy Laws in the United States,
3 Am. Bankr. Inst. L. Rev. 5, 30 (1995).

Ad Hoc Committees and the Misuse of Bankruptcy Rule 2019 1001
10. SEC Report at 586 (emphasis added).
11. SEC Report at 897 (emphasis added).
12. Further evidence of the “representative” concern regarding “protective committees”
can also be found in the Trust Indenture Act of 1939 (the TIA). The TIA, like Rule 2019, resulted
from action to implement the SEC Report’s recommendations to curtail abusive behavior by
protective committees. The TIA prohibits any provision in an indenture from impairing any
individual bondholder’s right to payment of principal and interest. See 15 U.S.C.A. § 77ppp(b).
This provision was specifically enacted to curtail so-called “majority action clauses” in
indentures that were used by “protective committees” to negotiate out-of-court restructurings
that were binding upon all bondholders. See In re Board of Directors of Multicanal S.A., 307
B.R. 384, 388-89 (Bankr. S.D. N.Y. 2004).
13. See Chapter X, § 210 & Chapter X, Rule 10-211:
Every person or committee representing more than one creditor or stockholder, and
every indenture trustee, shall file a signed statement with the court setting forth (1) the
names and addresses of such creditors or stockholder; (2) the nature and amounts of their
claims or stock and the time of acquisition thereof unless they are alleged to have been
acquired more than one year prior to the filing of the petition; (3) a recital of the pertinent
fact and circumstances in connection with the employment of such person or indenture
trustee, and, in the case of a committee, the name or names of the person or persons at
those instance, directly or indirectly, such employment was arranged or the committee
was organized or agreed to act; and (4) with reference to the time of the employment of
such person, or the organization or formation of such committee, or the appearance in
the case of any indenture trustee, a showing of the amounts of claims or stock owned by
such person, the members of such committee or such indenture trustee, the times when
acquired, the amounts paid therefor, and any sales or other disposition thereof.
14. Fed. R. Bankr. P. 2019(a).
15. See, e.g., Baron & Budd, P.C. v. Unsecured Asbestos Claimants Committee, 321 B.R.
147, 53 Collier Bankr. Cas. 2d (MB) 1159, 61 Fed. R. Serv. 3d 42 (D.N.J. 2005); In re Owens
Corning, Case No. 00-3837 (Bankr. D. Del. Oct. 22, 2004) and cases cited in note 26, infra.
16. David A. Rosenzweig, Will Disclosures Mandated in Northwest Airlines Fly with
Hedge Funds, J. Corp. Renewal, June 2007.
17. Fred S. Hodara, But What Did You Pay for It The Story of the Ad Hoc Committee,
Rule 2019, and the Northwest Discovery Dispute That Went Awry, Akin Gump Strauss Hauer
& Feld LLP Bankruptcy Update, April 2007 at 1, 3.
18. Scotia Pacific Company LLC’s Motion for an Order Compelling the Ad Hoc Committee
To Fully Comply with Bankruptcy Rule 2019(a) by Filing a Complete and Proper Verified
Statement Disclosing Its Membership and Their Interests, at 2; In re Scotia Development LLC,
Case No. 07-20027 (Bankr. S.D. Tex. Mar. 16, 2007).
19. Scotia Pacific Company LLC’s Motion for an Order Compelling the Ad Hoc Committee
To Fully Comply with Bankruptcy Rule 2019(a) by Filing a Complete and Proper Verified
Statement Disclosing Its Membership and Their Interests, at 11.
20. See Courtroom Minutes & Transcript of Record, In re Scotia Development LLC, Case
No. 07-20027 (Bankr. S.D. Tex. Apr. 17, 2007); see also Order (Apr. 18, 2007).
21. See Courtroom Minutes & Transcript of Record, In re Scotia Development LLC, Case
No. 07-20027 (Bankr. S.D. Tex. May 22, 2007); see also Order (May 29, 2007).
22. The legal definition of “committee” is: “A group of people appointed or elected to
consider, determine, or manage a matter” (Black’s Law Dictionary (7th ed. 1999)). While ad
hoc groups certainly constitute “a group,” its members are not “appointed or elected” by anyone
“to consider, determine, or manage” anything. The nonlegal definition of “committee” is: “A
group of people officially delegated to perform a function, such as investigating, considering,

1002 Norton Journal of Bankruptcy Law and Practice [Vol. 16]
reporting, or acting on a matter” (American Heritage Dictionary of the English Language (4th
ed. 2004) (emphasis added)).
23. In addition, Bankruptcy Rule 2019(a) requires “committees” to file “a copy of the
instrument, if any, whereby the…committee…is empowered to act on behalf of creditors or
equity security holders.” The importance of this documentary aspect of Rule 2019 “committees”
is further evidenced by subsection (b)(2), which contemplates that, when enforcing the rule, the
court should “examine any representation provision of a…committee or other authorization.”
See In re Kaiser Aluminum Corp., 327 B.R. 554, 559 (D. Del. 2005) (“As Rule 2019(b)
suggests, the operative portion of the agreements deposited under 2019(a) are the representation
provisions.”) (emphasis added).
24. See 11 U.S.C.A §§ 101(24) (“The term ‘foreign representative’ means a person or
body…authorized…to act as a representative of such foreign proceeding”); 323(a) (“The
trustee in a case under this title is the representative of the estate”); 327(a) & (e) (referring
to professionals eligible to “represent” the trustee); 329(a) (“Any attorney representing a
debtor”); 333(a)(1) (appointment of an ombudsman “to represent the interests of patients”);
503(b)(3)(D) (ability of “a committee representing creditors” to seek payment for making a
substantial contribution); 1102(a)(2) (authorizing the court to appoint additional committees of
creditors “if necessary to assure adequate representation of creditors”); 1102(a)(4) (the court
can reconstitute a committee if “necessary to ensure adequate representation of creditors”);
1102(b)(1) (a committee should be “representative of the different kinds of claims to be
represented”); 1102(b)(3)(A) (a committee “shall provide access to information for creditors
who (i) hold claims of the kind represented by that committee; and (ii) are not appointed to
the committee”); 1103(a) & (b) (referring to a committee’s ability to employ professionals to
“represent” the committee); 1103(c)(3) (permitting a committee to “advise those represented
by such committee,” meaning other creditors of the same class); 1113 (repeated references
to a “representative of employees”); & 1114 (defining “authorized representative” as the
“representative…for persons receiving any retiree benefits” and repeatedly referring to the
representative’s “representative” capacity).
25. Black’s Law Dictionary (7th ed. 1999) does not define “represent” but it does define a
“representative” as: “One who stands for or acts on behalf of another [the owner was the football
team’s representative at the labor negotiations]. See agent.” Thus, in order to “represent” other
investors, an ad hoc group would need to have the authority to “stand for” or to “act on behalf
of” the other investors as their “agent.” However, ad hoc groups do not have any such authority
and does not stand for or act on behalf of anyone. Ad hoc groups also do not operate as anyone’s
agent, not even as the “agent” of their own members, who remain free to advocate whatever
positions they wish without regard to the views expressed by the group as a whole. The nonlegal
definition of “represent” reinforces the fact that ad hoc groups do not represent other investors.
As relevant here, American Heritage Dictionary of the English Language (4th ed. 2004) defines
“represent” as: “To serve as the official and authorized delegate or agent for.” Ad hoc groups are
neither “official and authorized” nor are they a “delegate or agent” for anyone.
26. The limited Rule 2019 jurisprudence primarily focuses upon whether the party at issue
has “authority” to act as an “agent” on behalf of others, particularly where the party asserts that
it represents a larger class of creditors. See Reid v. White Motor Corp., 886 F.2d 1462, 1471, 19
Bankr. Ct. Dec. (CRR) 1435, 21 Collier Bankr. Cas. 2d (MB) 902, Bankr. L. Rep. (CCH) P 73086,
14 Fed. R. Serv. 3d 1399 (6th Cir. 1989) (attorney purporting to represent class action claimants
in bankruptcy failed to comply with Rule 2019 because attorney failed to prove his “authority
to act as an agent for any purported class”); In re Craft, 321 B.R. 189, 197-98, 53 Collier Bankr.
Cas. 2d (MB) 1197 (Bankr. N.D. Tex. 2005) (requiring putative class action representatives to
comply with Rule 2019 to establish “authority to represent” the class members); In re Wang
Laboratories, Inc., 164 B.R. 401, 403 (Bankr. D. Mass. 1994) (Rule 2019 requires party seeking
to represent class of mass tort claimants to “demonstrate authority” to act as “agent” for class
members in bankruptcy); In re Ionosphere Clubs, Inc., 101 B.R. 844, 851-53, 21 Collier Bankr.
Cas. 2d (MB) 331, Bankr. L. Rep. (CCH) P 72964 (Bankr. S.D. N.Y. 1989) (Consumers Union
whose members held only 0.05% of relevant claims needed to show “express authorization”
and “fiduciary relationship” to represent the remaining 99.95% of the claimant class under

Ad Hoc Committees and the Misuse of Bankruptcy Rule 2019 1003
Rule 2019); In re Great Western Cities, Inc. of New Mexico, 88 B.R. 109, 112, Bankr. L. Rep.
(CCH) P 72402 (Bankr. N.D. Tex. 1988), order vacated, 107 B.R. 116 (N.D. Tex. 1989) (Rule
2019 required attorney claiming to represent class of claimants beyond immediate client must
show authority to act as “agent” for class members); In re Vestra Industries, Inc., 82 B.R. 21,
22 (Bankr. D. S.C. 1987) (union failed to comply with Rule 2019 where it failed to show
“authority” to act as agent on behalf of individual union members); In re Continental Airlines
Corp., 64 B.R. 874, 880 (Bankr. S.D. Tex. 1986) (same); In re Electronic Theatre Restaurants
Corp., 57 B.R. 147, 148 (Bankr. N.D. Ohio 1986) (class action representative failed to comply
with Rule 2019 because it did not show “authority” to act as an “agent” for individual class
members); Matter of Baldwin-United Corp., 52 B.R. 146, 148, 13 Collier Bankr. Cas. 2d (MB)
309, Bankr. L. Rep. (CCH) P 70699 (Bankr. S.D. Ohio 1985) (class action representative failed
to comply with Rule 2019 because it failed to show that it was an “agent” of the individual class
members with “fiduciary duties” to class). See also 8 Collier on Bankruptcy, 2019.03, 2019-
3 to 2019-5 (15th ed. 1989) (“Rule 2019 covers entities which act in a fiduciary capacity but
which are not otherwise subject to the control of the court”) (emphasis added).
27. See U.S. v. Ron Pair Enterprises, Inc., 489 U.S. 235, 241, 109 S. Ct. 1026, 103 L. Ed. 2d
290, 18 Bankr. Ct. Dec. (CRR) 1150, Bankr. L. Rep. (CCH) P 72575, 89-1 U.S. Tax Cas. (CCH)
P 9179, 63 A.F.T.R.2d 89-652 (1989) (“where, as here, the statute’s language is plain, the sole
function of the courts is to enforce it according to its terms”) (internal quotations omitted).
28. Fed. R. Bankr. P. 1001.
29. See In re Shank, 315 B.R. 799, 812 (Bankr. N.D. Ga. 2004) (citing Bankruptcy Rule
1001 to overrule debtor’s objection that claims should be denied because they did not provide
information expressly required by Bankruptcy Rule 3001 and stating that “[a] bankruptcy case
imposes burdens on creditors...But that injury need not be compounded by imposing unnecessary
costs on creditors who desire to participate fairly in the process. Rule 1001’s directive requires
a bankruptcy court to apply the bankruptcy rules to permit creditors to realize their fair share in
a bankruptcy case without unnecessary expense.”).
30. United Airlines v. U.S. Bank, 406 F.3d 918 (7th Cir. 2005).
31. 28 U.S.C.A. § 2075.
32. See Hon. Robert D. Drain, Are Bankruptcy Claims Subject to the Federal Securities
Laws, 10 Am. Bankr. Inst. L. Rev. 569, 578 (2002); Matter of Executive Office Centers, Inc.,
96 B.R. 642, 649 (Bankr. E.D. La. 1988).
33. 11 U.S.C.A. § 1109(b).
34. U.S. Const. amend. V (“No person shall...be deprived of life, liberty or property without
due process of law.”); 11 U.S.C. § 1109(b); Board of Directors of Multicanal, 314 B.R. 486, 503
(Bankr. S.D.N.Y. 2004) (holding that the key issue in recognizing foreign insolvency is whether due
process, including notice and opportunity to be heard, were provided in bankruptcy proceeding).
35. See U.S. Const. amend. V (“[N]or shall private property be taken for public use
without just compensation.”); In re Treco, 240 F.3d 148, 158-60, 37 Bankr. Ct. Dec. (CRR)
125 (2d Cir. 2001) (“security interests have been recognized as property rights protected by our
Constitution’s prohibition against takings without just compensation.”).
36. See 11 U.S.C.A. § 107(b); International Dairy Foods Ass’n v. Amestoy, 92 F.3d 67, 71-
72, 24 Media L. Rep. (BNA) 2089 (2d Cir. 1996) (statute compelling disclosure of commercial
information infringed upon defendants companies’ First Amendment “right not to speak”); see
also Wooley v. Maynard, 430 U.S. 705, 714, 97 S. Ct. 1428, 51 L. Ed. 2d 752 (1977) (stating
that “the First Amendment’s [protection] against state action includes both the right to speak
freely and the right to refrain from speaking at all.”).
37. See U.S. Const. amend. V & XIV; Multicanal, 314 B.R. at 518-19 (“The principle of
equality between identically situated creditors is fundamental under U.S. insolvency law.”); 11
U.S.C.A. § 1129(b) (prohibiting discrimination in Chapter 11 bankruptcy plans of reorganization).
38. 11 U.S.C.A. § 105(a) (“The court may issue any order…that is necessary or appropriate
to carry out the provisions of this title.”).

1004 Norton Journal of Bankruptcy Law and Practice [Vol. 16]
39. See Fed. R. Bankr. P. 2019(a) (requiring disclosure “unless otherwise directed by the
court”); 2019(b) (providing that the court “may” order various remedies for a failure to comply
with Rule 2019); Kaiser Aluminum Corp., 327 B.R. at 559 (“It has been recognized that Rule
2019 need not always be strictly applied.”); In re Hudson Shipbuilders, No. Civ. S.84-0757,
1985 U.S. Dist. LEXIS 17654, at *14 (S.D. Miss. July 22, 1985) (holding that “Bankruptcy
Rule 2019(b) affords the court the discretion, and does not mandate” that the court must order
a remedy); See In re I.G. Services Ltd., 244 B.R. 377, 389 (Bankr. W.D. Tex. 2000), decision
rev’d on other grounds, 263 B.R. 505 (W.D. Tex. 2000) (holding that § 105 provided power to
protect party against application of Rule 2019 where application of the rule did not serve the
purpose of protecting against improper participation in bankruptcy proceedings).
40. See e.g., Reid v. White Motor Corp., 886 F.2d 1462, 1471, 19 Bankr. Ct. Dec. (CRR)
1435, 21 Collier Bankr. Cas. 2d (MB) 902, Bankr. L. Rep. (CCH) P 73086, 14 Fed. R. Serv.
3d 1399 (6th Cir. 1989) (attorney purporting to represent class action claimants in bankruptcy
failed to comply with Rule 2019 because attorney failed to prove his “authority to act as an
agent for any purported class”); In re Great Western Cities, Inc. of New Mexico, 88 B.R. 109,
112, Bankr. L. Rep. (CCH) P 72402 (Bankr. N.D. Tex. 1988), order vacated, 107 B.R. 116
(N.D. Tex. 1989) (Rule 2019 required attorney claiming to represent class of claimants beyond
immediate client must show authority to act as “agent” for class members).
41. See Wilson v. Valley Elec. Membership Corp., 141 B.R. 309, 312-13, 23 Bankr. Ct.
Dec. (CRR) 97 (E.D. La. 1992) (distinguishing between the authority of attorney-at-law and
attorneys-in-fact in bankruptcy proceedings: “[U]nlike an attorney[-at-law], and attorney in fact
is an agent for his client or principal”).
42. See In re Kaiser Aluminum Corp., 327 B.R. 554, 559, 54 Collier Bankr. Cas. 2d (MB)
1139 (D. Del. 2005) (“As Rule 2019(b) suggests, the operative portion of the agreements
deposited under 2019(a) are the representation provisions“) (emphasis added).
43. Jonathan S. Henes, Rule 2019 Opinion May Transform the Dynamics of Chapter 11
Cases, Daily Bankr. Rev., March 7, 2007 (Attorney Henes is a partner in the restructuring group
of Kirkland & Ellis LLP); see also Conray C. Tseng, Disclosure of Information by Distressed
Claims Purchasers, Weil, Gotshal & Manges Bankruptcy Bulletin, March 2007 at 1, 4 (“in
the future, debtors and other parties in interest may use Rule 2019 to gain access to increase
bargaining leverage”).
44. See Jonathan S. Henes, Rule 2019 Opinion May Transform the Dynamics of Chapter
11 Cases, Daily Bankr. Rev., March 7, 2007 (complaining that “ad hoc committees retain
professionals and attempt to influence the pace and the scope of the debtor’s restructuring” and
expressing hope that, after Northwest Airlines, “[t]he influential role of this new type of ad hoc
committee may soon diminish”).
45. See earlier discussion of TIA, supra note 13.
46. See Mark Berman & Jo Ann J. Brighton, Will the Sunlight of Disclosure Chill Hedge
Funds, Am. Bankr. Inst. J., May 2007, at 62.
47. See In re I.G. Services Ltd., 244 B.R. 377, 389 (Bankr. W.D. Tex. 2000), decision rev’d
on other grounds, 263 B.R. 505 (W.D. Tex. 2000) (stating that “[t]he only interest that the court
might have in enforcing the letter of Rule 2019 is to protect these very investors” and denying
motion by press to require strict public disclosure of Rule 2019 information because rule was
designed to protect investor participation in bankruptcy, not the press).