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Give & Take

First and foremost, I am very grateful for the work done by official unsecured Creditors Committees in Chapter 11 bankruptcies.  Having served on two Committees, in my opinion what members of the committee give to the creditor community is far more than they are likely to take from serving on a Committee.

A former student of mine called recently about serving on a Creditors Committee.  She explained that she was asked to serve, and believed joining a Committee would provide her with insights about why some customers file for bankruptcy protection.  Her plan was to use these insights to help her to avoid bad debt write offs in the future.

I responded that I did not recall a time when a Committee that I served focused on what went wrong in the debtor company.  Why?  We were too busy monitoring the debtor’s progress, or commenting on the proposed Plan of Reorganization, and discussing preferential transfers among many other tasks.  I told her that Committee membership requires a significant and lengthy time commitment.  I cautioned her that her own work would probably pile up while she attended offsite meetings or participated in lengthy conference calls with other Committee members and legal counsel.

Recognizing her goal was to become better at spotting customers in financial trouble, I suggested that she consider continuing her professional development by preparing for and taking the CCE Exam as an alternative to serving on the

Michael Dennis, CBF

Committee.  I am not sure whether she took my advice, but I am sure I will find out when she reads this Blog.

What are your thoughts?  Was my advice ‘on the mark’ or way off base?  Comments and constructive criticism is always welcomed.

Michael Dennis’ Covering Credit Commentary. Michael’s website is  www.coveringcredit.com

The opinions presented are those of the author.  The opinions and recommendations do not necessarily reflect the views of CMA, or their Officers and Directors.  Readers are encouraged to evaluate any suggestions or recommendations made, and accept and adopt only those concepts that make sense to them.

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7 Responses to “Give and Take; Trying to Find the Right Balance – Michael Dennis, CBF”

  1. Michael Zininberg says:

    Michael,

    I think your comments are on target. Whether your friend chooses to serve or not, her company will receive the same rate recovery as any other unsecured creditor. The only difference is her time commitment.

    Like many credit professionals, I now work 50 to 60 hours a week. Volunteering for a Committee and working another 3 hours a week to catch up or to stay caught up is not appealing to me.

    I hope your friend takes your advise. I believe that a professional designation would have a longer and far more significant impact than volunteering to serve on a Committee. Anyway, that’s my two cents.

    Best regards

    MZ

  2. F. Scott Wilson says:

    I have to disagree here. I’ve served on a UCC, and found it not only very instructive, but a huge boost to my career. The experience gained from working on the UCC was invaluable, and gave me a great deal of insight into the process.

    We already had a pretty good idea of what had triggered the bankruptcy (unethical behavior and preferential transfers within forty-five days of the bankruptcy petition), so it wasn’t particularly illuminating in that way. It did, however, give me and my fellow committee members a better understanding of how the the intent of the law might be subverted by a creative (read “ethically challenged”) attorney. We also learned how to use preference defenses when punitive and unsupported preference claims were brought solely against the UCC.

    That experience, along with working for a firm that went through Chapter 11, was something that moved my resume near or to the top when I was looking for a job later. It wasn’t fun, and I *did* have to spend some time catching up while I was on the Committee, but given the chance I would do it again.

  3. Margaret Spencer says:

    Based on Scott’s comments, its seems that two people can have two entirely different experiences, and if that is true, then you are both right.

    Michael, my one concern is that if creditors refused to serve on a Committee when asked to do so, who will do the heavy lifting.

    BTW, I also served on a UCC and while my experience was not as helpful to me professionally as it was for Scott, I did learn more about the inner workings of the Chapter 11 process.

  4. Michael Dennis says:

    Thank you for the comments thus far. Perhaps I should have added this comment….

    This Blog is not intended to dissuade anyone from volunteering to serve as a member of an unsecured creditors committee. My goal is to make certain you understand the scope of the commitment before you volunteer.

    Michael Dennis

    p.s. Scott, I had never seen the acronym UCC for unsecured creditors committee. Thank you

  5. Guy Nishida says:

    Michael,

    You can view the decision whether or not to participate from the personal growth perspective. But you can also weigh it compared to what benefit your employer gains. By serving on the committee, are you doing your job? Will you receive any more funds than you would otherwise? How much is at stake? What is the cost in time and money versus the gain? It may be appropriate for the company to join the process since your time away and travel expenses will be borne by the company.

    My experience has been that in most cases, there are a few major creditors with much larger unsecured debt relative to those 5 or six places down. In thoses cases, to use Margaret’s technical jargon, they have a vested interest in doing “the heavy lifting”.

    If your company has little to gain aside from what they would receive without being on the committee, then the time spent on the committeee for personal growth can be used reading or studying BK on your own personal flex time. If you were prepared to learn more, you still can. And your company is not negatively impacted and you are not short-changing your responsibilities.

    As I don’t believe most companies expect to be involved in many customer bankruptcies, the value of Scott’s experience on his resume might be unique. I don’t employers seeing BKs as an on-going condition in need of expertise as a job requirement. I think it would be more important to convince prospective employers that we have the knowledge to keep them out of such situations which is training of another sort.

  6. Michael Dennis says:

    Excellent insights Guy.

    My intent in writing the Blog was to address the question the value to credit professionals of service on a Committee.

    My experience was clearly different than Scott’s. Using a cost/benefit analysis, the cost(s) clearly outweighed the benefits… irrespective of what I learned about the inner workings of a Chapter 11 bankruptcy.

    Thank you for your contribution.

  7. F. Scott Wilson says:

    Just to clarify, the company I represented on the UCC was owned by a retired District Attorney, and my presence at meetings and conference calls was mandated. We were also one of the top three (out of seven) major vendors/creditors in the case, and we didn’t want to lose an opportunity to defend our interests.

    On a simple cost/benefit analysis, we didn’t gain any more money, especially since the case later converted to Chapter 7, with the agreement of and some arguments in favor by the UCC. At the same time, I was able to defend my company against $200K in claimed preferences, based in part upon what I learned there.

    I should also point out that there is an explicit duty by the members of the UCC to act in the interest of *all* unsecured creditors, not just those on the UCC or, worse, your employer alone. Serving on the committee is of benefit to the class of unsecured creditors as a whole. That can be tricky to balance with the needs of the company footing the bills for your participation.

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