Rule 2019 - It’s as Plain as the Nose on an Elephant's Face
The Forgotten Rule
Federal Rule of Bankruptcy Procedure 2019 requires every committee in a chapter 9 or chapter 11 bankruptcy case “representing” more than one creditor or equity security holder to file a verified statement containing certain disclosures, such as the amount of claims held by members of the committee, the dates the members acquired their claims and the amounts paid for the claims.1 In the event the court determines that there has been a failure to make the required disclosures, the court may refuse to permit the committee to be heard further or to intervene in the case, and may hold invalid actions taken by the committee.2 In practice, committees largely ignored or only partially complied with Rule 2019. More recently, however, Rule 2019 has been used as a litigation tactic and has attracted much attention from judges and distressed debt traders.3 Even more controversial are proposed changes to Rule 2019 that are currently contemplated and may become effective at the end of 2011.
To date, only a handful of bankruptcy courts have considered the application and scope of Rule 2019 and they have been unable to agree upon the “plain meaning” of the rule and whether groups of creditors who act in concert constitute a Rule 2019 "committee."
© Bloomberg Finance L.P. 2010. Originally published by Bloomberg Law Reports, Vol. 4, No. 18, May 3, 2010. Reprinted by permission.
The full article appears in the PDF linked below.
1 Fed. R. Bankr. P. 2019(a).
2 Fed. R. Bankr. P. 2019(b).
3 Debtors and others appear to have filed motions to compel compliance with Rule 2019 in order to achieve leverage over opponents since traders do not want to reveal the timing and pricing of their positions.