Supreme Court Approves Amended Bankruptcy Rule 2019 on Disclosure Requirements | Practical Law

Supreme Court Approves Amended Bankruptcy Rule 2019 on Disclosure Requirements | Practical Law

An update on the US Supreme Court's approval of amended Federal Rule of Bankruptcy Procedure 2019 governing disclosure of certain information by official and unofficial committees and informal groups that consist of or represent more than one creditor or equity security holder in a Chapter 9 or Chapter 11 bankruptcy case.

Supreme Court Approves Amended Bankruptcy Rule 2019 on Disclosure Requirements

Practical Law Legal Update 0-505-9151 (Approx. 3 pages)

Supreme Court Approves Amended Bankruptcy Rule 2019 on Disclosure Requirements

by PLC Corporate & Securities and PLC Finance
Published on 29 Apr 2011 • USA (National/Federal)
An update on the US Supreme Court's approval of amended Federal Rule of Bankruptcy Procedure 2019 governing disclosure of certain information by official and unofficial committees and informal groups that consist of or represent more than one creditor or equity security holder in a Chapter 9 or Chapter 11 bankruptcy case.
On April 26, 2011, the US Supreme Court issued an order approving an amendment to Federal Rule of Bankruptcy Procedure 2019 (Amended Rule 2019). Amended Rule 2019 requires, among other things, that official and unofficial committees and informal groups consisting of or representing multiple creditors or equity security holders disclose the identity of each member and its "disclosable economic interests" in a debtor in a Chapter 9 or Chapter 11 bankruptcy case (as well as the identities of, and the disclosable economic interests held by, each entity represented by the committee or group). If Congress approves Amended Rule 2019 as expected, hedge funds and other investors in distressed debt, which often informally work together to influence bankruptcy proceedings, will be subject to the rule for cases filed on or after December 1, 2011.
Information that must be disclosed under Amended Rule 2019 includes:
  • The circumstances surrounding the formation of a group or committee and the name of each entity at whose insistence the group or committee was formed or for whom the group or committee has agreed to act.
  • The names and addresses of each member of the group or committee and those entities represented by the group or committee.
  • The nature and amount of each member's disclosable economic interest in the debtor on the date the group or committee was formed, as well as the nature and amount of disclosable economic interests held by each entity represented by the group or committee as of the date the verified Rule 2019 statement was filed. A disclosable economic interest is defined broadly to cover any economic interest that could affect the legal and strategic positions a stakeholder takes in a Chapter 9 or Chapter 11 case (including pledges, liens, options, participations and derivative instruments).
  • For any group or committee that claims to represent any entity in addition to members of the group or committee, the quarter and year in which each member of the group or committee acquired its disclosable economic interest, unless the acquisition was more than one year before the bankruptcy petition was filed. Significantly, disclosure of the price paid for a disclosable economic interest is not required, unless ordered by the court.
Certain parties, such as indenture trustees, agents under loan agreements and class action representatives, will be exempt from the disclosure requirements, unless otherwise ordered by the court.
A panel of bankruptcy judges and restructuring experts drafted the amended rule amidst concerns arising out of the differing interpretations among lower court judges about whether distressed-debt investors who formed ad hoc groups to advance their common interests were covered by the current version of Rule 2019.
For more information on revised Rule 2019, see Practice Note, Disclosure Under Bankruptcy Rule 2019.