CHICAGO — Detroit has asked the bankruptcy court overseeing its Chapter 9 case to dissolve a committee representing unsecured creditors that the U.S. Trustee said is required under code.
The committee was set up in early December by the U.S. Trustee after Bankruptcy Judge Steven Rhodes found the city formally eligible to enter into Chapter 9 protection.
The trustee believes that it is required by the bankruptcy code to set up a committee of unsecured creditors, the city noted in its brief.
But Detroit's Jones Day attorneys argued that the requirement actually applies only to Chapter 11 cases.
The creditors on the committee are already well represented in the case and the establishment of the committee could act as a drag on negotiations, the city argued.
The trustee appointed as members of the committee bond insurer Financial Guaranty Insurance Co., the city's two pension funds, the Wilmington Trust Company, which is the trustee for the city's pension certificates, and a tort lawyer.
The parties are creditors who are already very active in the case, according to the city.
"The city interacts with these parties on virtually a daily basis," the brief says. "Thus the appointment of these parties to the creditors' committee — the purpose of which is to provide representation for otherwise unrepresented unsecured creditors — is wholly unnecessary."
The committee could disrupt ongoing negotiations, attorneys said.
"The city believes that the appointment of the creditors' committee comprised largely of parties already participating in mediation will not advance, and may well disrupt, the mediation," the brief said. "The risk is particularly significant where four of the five creditors' committee members already are participating in mediation, with their own counsel, to advocate their individual interests.
Other unsecured creditors, like trade creditors, are being or have been paid, according to Detroit.