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Information for members of the creditors committee

With bankruptcy, the bankruptcy debtor loses the right to control all assets from the time at which bankruptcy proceedings commence. A trustee will be appointed and will assume control over the estate in conjunction with the other organs of the estate. The creditors committee is one of these organs. The function of the members of the creditors committee is to protect the interests of the creditors during the bankruptcy proceedings. The members of the creditors committee are the representatives of all creditors. Together, the trustee and the creditors committee make up the board of trustee.

1. Establishment

Rules on competence
The employees’ representative
The introductory phase

2. Duties and obligations

The reviewing of claims
Confidentiality
The creditors committee’s supervision of the trustee
The accounts of the estate

3. The organs of the estate

The trustee
Votes by the board of trustees The auditor
The general meeting of creditors The Bankruptcy Court

4. Liability and insurance

5. Remuneration


1. Establishment

The creditors committee is not a mandatory body but must be appointed if the size or complexity of the estate or other factors so necessitate, see Section 83 first paragraph of the Debt Reorganisation and Bankruptcy Act (DRBA). The creditors committee comprises from one to three persons.

Appointment
The Bankruptcy Court appoints the creditors committee, cf. Section 83 third paragraph of the Debt Reorganisation and Bankruptcy Act. As soon as bankruptcy proceedings commence, the Bankruptcy Court must determine without delay whether a creditors committee needs to be appointed, cf. Section 77 second paragraph of the DRBA. A creditors committee should be appointed if important decisions need to be taken before the first general meeting of creditors, such as decisions on whether or not business operations should continue, whether the business should be sold and key assets realized.

The creditors committee will normally be appointed in connection with the first general meeting of creditors. The creditors will be given the opportunity to give their views on whether a creditors committee should be appointed and if so, on the composition of the committee, unless a committee has already been appointed pursuant to Section 77 of the DRBA. The Bankruptcy Court should also seek the trustee’s views on this matter.

Anyone interested on becoming a member of the creditors committee should notify the trustee without delay after the commencement of bankruptcy proceedings or by the first general meeting of creditors at the latest.

Participation must be cleared in advance with those who are interested in serving on the committee and the office is voluntary. Nevertheless, the Bankruptcy Court may agree with for example the Chief Municipal Treasurer and the Tax Collector that representatives should be appointed from these quarters. If an appointee is not present, it is the responsibility of the Bankruptcy Court to ensure that the person in question is notified.

Who may serve on the creditors committee?
It will be useful for the largest creditors to be members of the creditors committee. Furthermore, creditor groups that are likely to receive coverage should also be represented. This will generally be representatives of the Tax Collector and Chief Municipal Treasurer, since claims for taxes and duties are often preferred. The Norwegian Advisory Council on Bankruptcy has stated that public authorities should be prepared to make their expertise available to the estate (Statement No. 14).

As a general rule the members of the creditors committee should be recruited from amongst the ranks of the creditors. If this proves difficult, other persons may be chosen. Some bankruptcy courts operate a scheme whereby students and/or retired people serve as members of creditors committees. It may also be useful to include persons with specialist expertise.


Rules on competence

No person who is to serve as a member of the creditors committee must be incompetent in relation to the debtor. This means that members of the immediate family, and current and former spouses of the debtor must not be members of the creditors committee. Nor may employees of or advisers to the debtor (this does not apply to the employees’ representative) or any person who is subject to debt reorganization or bankruptcy proceedings be elected. See also Section 91, cf. Sections 12 and 13 of the DRBA.


The employees’ representative

If the debtor operated a business, a majority of the employees may require the creditors committee to be increased by one member, as their representative, see Section 84 second paragraph of the DRBA. One or more trade unions representing a majority of the employees may also require such a member to be appointed. This member is appointed by the Bankruptcy Court.


The introductory phase

It is important that the bankruptcy proceedings get under way as soon as possible. If the debtor operates a business, the board of trustees must determine without delay whether this business should continue or be wound up.


2. Duties and obligations

The members of the creditors committee take part in making decisions about the estate and the management of the assets of the estate. Most of the duties allotted to the creditors committee are performed in cooperation with the trustee, as the board of trustees. It is not customary for the creditors committee to meet on its own. The members of the creditors committee are the representatives of all creditors, but it is also their duty to protect the interests of the employees and the public authorities to the extent that this is consistent with the joint interests of the creditors, see Section 88 first paragraph of the DRBA. It is the common interest of the creditors that are to be protected, not those of individual creditors. The estate must seek to achieve as high a rate of recovery for the creditors as possible within the limits imposed by legislation.

Some decisions must be adopted by the whole board of trustees, for example whether or not the business operations of the debtor are to continue and the contents of the report of the board of trustees, see Section 120 of the Debt Reorganisation and Bankruptcy Act. The trustee must also consult the creditors committee on other significant matters. The creditors committee may also require the trustee to put specified issues relating to the bankruptcy proceedings to the whole board of trustees. If so, the creditors committee must specify the issues concerned.


The reviewing of claims

The trustee reviews the claims and determines whether the claims should be approved. This recommendation is usually reviewed at a meeting of the board of trustees, cf. Section 111 of the DRBA. The holders of claims that are to be reviewed may be present if they so choose. The members of the creditors committee have an independent right to object to the recommendation of the trustee. If no protests are forthcoming, the claim will be approved.

If the trustee recommends that a claim should not be approved or if a creditor or member of the creditors committee has an objection to the claim, the trustee must give the claimant the opportunity to comment. If there are still objections to the claim after the claimant’s comments, the matter must be reported to the Bankruptcy Court. The Court will give the claimant a deadline within which to bring an action.

If an action is brought, the claimant and the party disputing the claim, for example a member of the creditors committee, will be parties to the action. Thus, if the claim is disputed by a member of the creditors committee, this person will be a party in the action. He or she must present his/her views to the Court and risks liability for the litigation costs of the other party if the dispute is lost. If the person in question wins the dispute but is not awarded costs against the other party, the Bankruptcy Court may decide that the person’s litigation costs should be borne by the estate. Further details on the reviewing of claims can be found in Chapter 12 point 10.4 of the Norwegian Advisory Council on Bankruptcy’s recommendations on the Bankruptcy Court’s processing of bankruptcy petitions and bankruptcy estates.


Confidentiality

The members are bound by a duty of confidentiality with regard to the personal affairs of the debtor. Breaching this duty of confidentiality may constitute an offence, see Section 160 of the DRBA.


The creditors committee’s supervision of the trustee

One of the most important duties of the creditors committee is to ensure that the work of the trustee complies with legislation and the resolutions that have been adopted, see Section 88 second paragraph of the Debt Reorganisation and Bankruptcy Act. This is because the trustee has a number of independent duties. The creditors committee has the right to inspect all the documents and records of the estate as well as any other information on the estate.

The creditors committee must notify the Bankruptcy Court if it finds the trustee difficult to work with or if it suspects irregularities in the bankruptcy proceedings. It is also essential for the creditors committee to ensure that the bankruptcy proceedings progress at a satisfactory rate. If it is dissatisfied with the trustee and its views are not being taken into account, the creditors committee may apply for a general meeting of creditors to be convened, cf. Section 92 first paragraph of the Debt Reorganisation and Bankruptcy Act.


The accounts of the estate

If no auditor has been appointed, the Bankruptcy Court may decide that the creditors committee should audit the accounts of the estate, see Section 90 fourth paragraph of the DRBA. The auditing process will generally consist of checking the documentation for transactions registered in the bank account and reconciling the balance against the bank statement. Checks must also be performed to ensure that all the registered assets of the estate have been realized and recorded in the accounts. If they have not, a reason must be given in the final report. If the creditors committee finds that the accounts of the estate are in order, it will include an endorsement to this effect on the accounts: "Audited and found to be correct" duly dated and signed. Any comments that the creditors committee may have must be included in the endorsement. Reference is made to the Norwegian Advisory Council on Bankruptcy’s recommendations on the recording and reporting of the accounts of bankruptcy estates, Chapter 11, point 12.


3. The organs of the estate

The trustee

The trustee is responsible for the day-to-day administration of the estate. The trustee is generally an attorney at law. The trustee convenes the meetings of the board of trustees, chairs these meetings and records their minutes, see Section 89 of the Debt Reorganisation and Bankruptcy Act.

It is important that the members of the creditors committee are aware of their role in relation to that of the trustee. An experienced trustee could easily take control. The creditors committee must therefore ensure that it is involved in all important decisions. The members of the creditors committee will frequently have experience and expertise that will be useful to the trustee.



Votes by the board of trustees

On all issues of significance the trustee reaches his/her decision in consultation with the creditors committee, cf. Section 85 second paragraph of the DRBA. The board of trustees may also reach decisions without convening a physical meeting, for example by means of conference calls. If the board of trustees is unable to reach a decision, a vote must be organized. In the event of a tied vote, the trustee has the casting vote. The trustee is bound by the decision of the board of trustees.

If the board of trustees is considering matters concerning the relationship of the estate to a creditor who is represented on the creditors committee, questions may be posed about the competence of the creditor in question, see the rules on competence in Section 91, cf. Section 12 third paragraph, of the Debt Reorganisation and Bankruptcy Act. No member of the board of trustees may participate in the discussions or decision of any issue in which the person in question has a prominent personal or financial special interest. The same should probably apply to matters relating to the employer or members of the immediate family of the person in question.


The auditor

As a general rule an auditor to the estate must be appointed, see Section 90 of the Debt Reorganisation and Bankruptcy Act. The Bankruptcy Court may decide against appointing an auditor if the estate is simple and straightforward or if the funds available are so limited that it would be difficult to cover the costs, see Section 90 fourth paragraph of the Debt Reorganisation and Bankruptcy Act. In practice many estates do not have sufficient funds for an auditor.


The general meeting of creditors

In formal terms the board of trustees is subject to the authority of the general meeting of creditors, i.e. a meeting chaired by the Bankruptcy Court, at which all creditors are present. Usually the general meeting of creditors will not be quorate because insufficient creditors are in attendance. In practice most decisions during the bankruptcy proceedings will be taken by the board of trustees. Normally only one general meeting of creditors will be held in the Bankruptcy Court.


The Bankruptcy Court

The Bankruptcy Court may decide that certain matters should be put to the general meeting of creditors and may convene such a meeting for this purpose, see Section 92 of the DRBA. In some cases the Bankruptcy Court may also reverse the decisions of the board of trustees. In some cases a member of the board of trustees will have the option of applying to the Bankruptcy Court for a decision adopted by the organs of the estate to be reversed, see Section 99 of the Debt Reorganisation and Bankruptcy Act.


4. Liability and insurance

The members of the creditors committee are personal appointees and may accordingly be liable for any errors that are committed. According to the ordinary rules on compensatory damages an employer is liable for any faults committed during the course of the duties of an employee, see Section 2-1 of the Compensatory Damages Act. It is assumed that membership of a creditors committee does not constitute service for an employer.

Oslo Bankruptcy Court has negotiated an insurance agreement with insurers Storebrand, which covers the creditors committee. A number of other bankruptcy courts have also entered into insurance agreements of this nature. The creditors committee should encourage the Bankruptcy Court to take out this type of insurance cover.


5. Remuneration

The remuneration payable, if any, to the trustee and creditors committee is determined by the Bankruptcy Court in response to a suggestion by the trustee, see Section 157 of the Debt Reorganisation and Bankruptcy Act.

The Bankruptcy Court may decide that a creditors committee should be appointed only if its members are prepared to undertake the office at no charge, see Section 83 third paragraph of the Debt Reorganisation and Bankruptcy Act.

It is not customary for advances to be paid on such remuneration.

As a general rule tax will be deducted from the remuneration. If the payment does not exceed NOK 1,000.- it will not be liable for taxation and accordingly no tax will be deducted, cf. the regulations of 30 December 1983 No. 1974 concerning the statutory duty to issue pay statements, Section 1. Generally, the remuneration will be subject to Employer’s National Insurance tax. However, if the total Employer’s National Insurance contribution during the period in question is less than NOK 150.-, the estate will not be liable. If the remuneration is paid out to an employer, it will be subject to neither deductions nor Employer’s National Insurance contributions. See also the Norwegian Advisory Council on Bankruptcy’s recommendations on the recording and reporting of the accounts of bankruptcy estates, Chapter 11 point 5.5.




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