It's been a few years since decisions from the United States Bankruptcy Courts for the Southern District of New York, and later from the Southern District of Texas, examined whether hedge funds and other investors could be required to disclose the details of their trades when they form an ad hoc committee or group in a Chapter 11 case. Last week, Judge Mary Walrath of the United States Bankruptcy Court for the District of Delaware issued a decision in the Washington Mutual, Inc. Chapter 11 case, for the first time giving us a Delaware bankruptcy judge's views on the subject. Before turning to the new decision, a copy of which is available below, let's first put the issue in context.
Ad Hoc Committees and Groups. In recent years, hedge funds and other investors in distressed debt or the equity securities of bankrupt companies have taken active roles in Chapter 11 bankruptcy cases. Often, these investors form unofficial or "ad hoc" committees.
Much like official committees of unsecured creditors, equity security holders, retirees, or other constituencies, unofficial or ad hoc committees typically hire counsel and file motions and other pleadings during the course of a bankruptcy case. Sometimes these creditors call themselves a committee but more recently the more informal term "group" has been used. By acting as a committee or group, the creditors not only share the costs of participating in the bankruptcy case but also have the ability to wield greater influence by acting collectively instead of on an individual basis.The Rule 2019(a) Statement. After making an appearance in a bankruptcy case, these groups or committees, their counsel, or both will typically file what's known as a "Rule 2019(a) Statement." This is a public filing required by Rule 2019(a) of the Federal Rules of Bankruptcy Procedure, the set of procedural rules which, together with the United States Bankruptcy Code itself, govern the conduct of bankruptcy cases. Rule 2019(a) provides, in part, as follows:
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