Creditors Committee

Posted in Finance, Accounting and Economics Terms, Total Reads: 643

Definition: Creditors Committee

Creditors Committee is a panel of individuals who represent an organization’s or a debtor’s creditors when they are on the verge of going bankrupt. This can include a group of people or people representing any institution or companies which may be creditors to the company facing bankruptcy.

The creditors' committee is made up of two type of members which are secured and unsecured creditors.

The secured creditors committee has the people who have given the loan and who have a primary entitlement on debtor’s assets. Secured creditors generally includes banks or other asset based lenders who have the right to repossess or foreclose on the property when the business or the debtor goes bankrupt.

While the unsecured creditors committee generally have secondary claim on the debtor depending on the amount they are owed. This category includes suppliers, contractors and customers. They are one of the last groups to be paid, before the shareholders of the company.

A creditors’ committee should be formed of between three and five members, even number of members should be avoided, so as to avoid the risk of deadlocks in voting by the committee.

The principal functions of the committee is

• To undertake the interest of all the creditors and not restrict to themselves.

• To develop a plan of action by reviewing debtor’s assets, liabilities, and financial status to help the debtor recover back.

• To disburse the assets of debtors as per the level of creditors.

• To assist the trustee and act as a working board for him to obtain views on matters related to the bankruptcy.

The trustee is supposed to report to the committee on matters related to the insolvency and to submit copies of his financial accounts when asked for. Meetings are generally held when decided by the trustee, and voting is by majority in number.

Hence, this concludes the definition of Creditors Committee along with its overview.

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