The United States Trustee (or U.S. Trustee) is appointed by the Court in every Chapter 11 case to represent the interests of the U.S. bankruptcy system. The U.S. Trustee does not represent the Debtor’s interests or the interests of specific creditors. Rather, the U.S. Trustee is focused on raising issues that may affect the integrity of the bankruptcy process and, if unaddressed, could result in harmful precedent.
As the “watchdog” of the Court, the U.S. Trustee plays an especially important role in cases when the Debtor and certain creditor groups with sufficient support to confirm a plan have agreed to financing terms or a chapter 11 plan of reorganization that offers certain benefits that could potentially be seen as an abuse of the Bankruptcy system. For example, the U.S. Trustee will often object to releases of certain non-debtor third parties (e.g., management) when those releases appear to have been obtained without any value being contributed by those parties to the estate for the benefit of creditors. The U.S. Trustee may also object to onerous financing terms if unsecured creditors are unable or insufficiently represented to raise those same concerns.
Another critical role of the U.S. Trustee is appointing an Official Committee of Unsecured Creditors (commonly known as the “Committee” or “UCC”). The Committee will appoint its own counsel and if necessary, its own financial advisors and/or investment bankers, and will represent the interests of all unsecured creditors. This ensures that all unsecured creditors have a minimum level of representation through the Committee. In cases with insufficient creditor interest, the U.S. Trustee will decline to appoint a Committee and raise issues independently if necessary.
Are you currently a creditor in a bankruptcy case? Learn if serving on a Committee is right for you.