The Bankruptcy Creditors' Council - Role, Responsibilities and Influence on the Proceedings

The creditors' committee is one of the key bodies in bankruptcy proceedings, performing supervisory, advisory, and control functions. Its establishment and activities are strictly regulated by the provisions of the Act of 28 February 2003 – Bankruptcy Law (Journal of Laws of 2024, item 794, hereinafter referred to as: "Bankruptcy Law"). The following article, prepared from the perspective of expert in the field of bankruptcy law, aims to provide a detailed discussion of the role, competences and procedures related to the creditors' committee.

Contents:

A few words about the article - Listen

Definition and purpose of the creditors' committee

The creditors' committee is a body representing all creditors in bankruptcy proceedings. Its primary purpose is to ensure that the proceedings are conducted in a manner consistent with the interests of the creditors by overseeing the actions of the bankruptcy trustee and expressing opinions on key issues. regarding the bankruptcy estate.

Establishment of a creditors' committee

1. Legal basis

Pursuant to Article 201 of the Bankruptcy Law, the creditors’ committee is appointed by the judge-commissioner ex officio or at the request of:

• fallen,
• at least three creditors,
• creditor or creditors holding in total at least one fifth of the total receivables.

The judge-commissioner is obliged to establish a committee of creditors immediately, no later than within one week from submitting an applicationIt is worth noting that certain categories of creditors, such as those who acquired the claim after the declaration of bankruptcy, may be excluded from filing such a motion (Article 201, paragraph 2 of the Bankruptcy Law).

2. Composition of the council creditors

Pursuant to Article 202 of the Bankruptcy Law, the creditors' committee consists of five members and two deputies, appointed from among the creditors participating in the proceedings. If the number of creditors participating in the proceedings is fewer than seven, the committee may consist of three members.

Members of the council perform their duties in person or through their bodies, including through a proxy (e.g., an attorney or legal counsel). A creditor may refuse to accept the duties of a council member or their deputy (Article 202, paragraph 3, of the Bankruptcy Law).

Duties and powers of the creditors' committee

The creditors' committee has a broad range of powers that enable it to effectively perform supervisory and advisory functions. Pursuant to Article 205 of the Bankruptcy Law, the committee's main powers include:

• Providing assistance to the trustee: The Council supports the trustee in the performance of his duties by providing advice and guidance.
• Control of the trustee's activities: The Council has the right to control the actions of the trustee, request information and documents from him and examine the books and documents of the debtor's enterprise.
• Examination of the state of bankruptcy estate funds: The Council is monitoring the state of the bankruptcy estate funds, which allows for the assessment of the effectiveness of the trustee’s actions.
• Granting permits for specific activities: Some actions of the trustee require the consent of the creditors' committee, e.g. the sale of property included in the bankruptcy estate, taking out loans or encumbering the bankrupt's assets.
• Expressing opinions: The Council expresses opinions on matters requested by the judge-commissioner or the trustee.
• Submitting comments and requests: The council or its members may submit comments to the judge-commissioner regarding the activities of the trustee and request explanations from the trustee and the bankrupt.
• Initiating change: The council has the right to request the replacement of the trustee if it finds that his actions are inappropriate or detrimental to the interests of the creditors.

It is worth noting that the creditors' committee may also request and examine the bankrupt's books and documents from the trustee (Article 205 of the Bankruptcy Code). However, if the trustee refuses to provide such information, the committee may request the judge-commissioner to issue appropriate orders (Article 205 of the Bankruptcy Code).

Procedure for the operation of the creditors' committee

The first meeting of the council is convened by the trustee immediately after its appointment. At this meeting, the council adopts regulations specifying the procedure for meetings, the method of collecting votes, and the principles of cooperation with the trustee. The regulations may also provide for remote or circular voting, which is particularly important given the frequent geographical dispersion of council members.

At the first meeting, the council elects a chairperson from among its members, who represents the council before the trustee and the judge-commissioner. His duties include convening meetings, preparing draft council resolutions, and filing resolutions adopted by the council in the case file.

Meetings should be held regularly, especially in cases where the trustee plans to undertake activities requiring the council's consent. However, in practice, there are situations in which the council meets infrequently, which, depending on the circumstances, can be viewed positively or negatively, as it can lead to delays in the proceedings and impairment of property value.

Practical problems also arise in the context of communication between board members – the lack of a uniform form of contact, for example, through a dedicated platform or electronic system, hinders rapid decision-making. In large-scale proceedings, conflicts of interest also occur between board members, for example, when some represent competing companies to the bankrupt. Such conflicts can lead to decision-making paralysis, as one of the examples presented here illustrates.

It also happens that council members do not actively engage in its work, treating their appointment to the council as a formal obligation. In such cases, the judge-commissioner may dismiss a council member who fails to fulfill their duties and appoint another creditor in their place.

Dismissal of members of the creditors' committee

The judge-commissioner may dismiss members of the creditors' committee who fail to properly perform their duties and appoint others (Article 202, Section 1, Bankruptcy Law). The decision may be appealed. A validly dismissed member of the creditors' committee cannot be reappointed.

A member of the creditors’ committee may also submit a motion to be dismissed from his/her position (Article 202, paragraph 1a of the Bankruptcy Act).

If an application to change the composition of the creditors’ committee is submitted by a creditor or creditors holding at least one-fifth of the total amount of the receivables, the judge-commissioner is obliged to grant the application and dismiss the indicated member of the committee (Article 203 of the Bankruptcy Law).

Relations with other bankruptcy authorities

1. Relationship with the trustee

The creditors' committee exercises a supervisory role over the bankruptcy trustee. Pursuant to Article 205, Section 1 of the Bankruptcy Law, the committee provides assistance to the bankruptcy trustee, supervises their activities, and examines the status of the bankruptcy estate. It also has the right to request explanations from the bankruptcy trustee and examine books and documents relating to the bankruptcy, to the extent that this does not violate business confidentiality (Article 205, Section 3 of the Bankruptcy Law).

In addition, the creditors’ committee may submit comments to the judge-commissioner regarding the activities of the trustee and request his dismissal (Article 205, paragraph 2 of the Bankruptcy Act and Article 207a of the Bankruptcy Act).

2. Relationship with the judge-commissioner

The judge-commissioner supervises the course of the bankruptcy proceedings. The creditors' committee cooperates with the judge-commissioner, expressing opinions on matters requested by the judge-commissioner (Article 205, paragraph 1 of the Bankruptcy Law). If the trustee or the bankrupt refuses to provide information, the committee may request the judge-commissioner to issue appropriate orders (Article 205, paragraph 3 of the Bankruptcy Law).

3. Relationships with the fallen

The creditors' committee has the authority to demand explanations from the bankrupt and to examine books and documents relating to the bankruptcy, provided they do not violate business confidentiality. If the bankrupt refuses to cooperate, the committee may request the judge-commissioner to issue appropriate orders.

Permission from the creditors' committee to perform the trustee's duties

Pursuant to Article 206, Section 1 of the Bankruptcy Law, certain actions of the bankruptcy trustee require the consent of the creditors' committee, otherwise being null and void. Such actions include:

• continued operation of the enterprise by the trustee, if it is to last longer than three months from the date of declaration of bankruptcy;
• withdrawal from the sale of the enterprise as a whole;
• sale of property included in the bankruptcy estate without a contract;
• taking out loans or credits and encumbering the bankrupt's assets with limited property rights;
• recognition, waiver and conclusion of a settlement regarding disputed claims and submission of the dispute to an arbitration court.

In situations where a creditors’ committee has not been appointed, these activities require the consent of the judge-commissioner.

Practical example 1 – effective intervention of the creditors' committee

In one bankruptcy proceeding, the trustee proposed the sale of a warehouse property on a private sale basis for PLN 3.5 million. The creditors' committee refused, citing the need for a public auction. After the auction was announced, the property was sold for PLN 4.8 million. The committee's decision increased the proceeds to the bankruptcy estate, which translated into a higher level of satisfaction of all creditors' claims.

The importance of the creditors' committee in bankruptcy proceedings

The creditors' committee plays a key role in bankruptcy proceedings, protecting the interests of all creditors. Its powers over the trustee, the judge-commissioner, and the bankrupt are strictly defined in bankruptcy law, ensuring the transparency and efficiency of the proceedings.

Through its activities, the creditors' committee influences the conduct of bankruptcy proceedings by overseeing the actions of the trustee, expressing opinions on key issues, and granting permission for important actions. Its presence in bankruptcy proceedings contributes to increased creditors' confidence in the process and better safeguards their interests.

Practical example 2 – decision-making paralysis of the council and loss of property value

In another bankruptcy proceeding, the trustee obtained an attractive offer for the sale of a technological line, subject to a prompt agreement. The creditors' committee, composed of creditors affiliated with the bankrupt's competitors, delayed the decision for over a month, demanding additional analyses, which led to the bidder's withdrawal. As a result, the assets were later sold for half the initial offer price. This example illustrates how the committee's delay can result in a loss of real value for all creditors.

Summary

The creditors' committee is not just a formal body, but a real tool for creditors to influence the course of bankruptcy proceedings. Its decisions—both correct and incorrect—directly impact the pace of the proceedings, the management of the bankrupt's assets, and the ultimate level of satisfaction of claims.

Practical examples demonstrate that an effective bankruptcy council can increase the effectiveness of a bankruptcy trustee, prevent unfavorable transactions, and protect the interests of all creditors. On the other hand, a lack of decisiveness, conflicts of interest, or neglect of duties can lead to irrecoverable losses.

That's why it's so important that creditors' committee members possess not only knowledge and experience but also the willingness to perform their duties reliably. A properly functioning creditors' committee is essential for transparent, swift, and fair bankruptcy proceedings—ones that truly protect creditors.

For this reason, it is worth using the help of specialized advisors who have practical experience in handling bankruptcy proceedings and participation in creditors' committees. Professional support can be crucial in protecting creditors' interests and increasing the chances of successfully recovering debts.