Ad Hoc Committees and the Misuse of Bankruptcy Rule 2019

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of two unpublished bench rulings (an original ruling denying Scopac’s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