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allowed creditors with conflicting interests to serve on committees, however, if the conflict
was speculative and there was no specific evidence they had not breached or were likely to
breach their fiduciary duties to their constituents. A member should be disqualified, however, upon evidence that it has breached or is likely to breach fiduciary duties through litigation that would have a substantial negative impact on the prospects of a distribution to unsecured creditors. One Court has held that an appearance of a breach of fiduciary duty should likewise mandate disqualification, and further that as a matter of public policy, former officers and directors should not serve on committees because their actions as fiduciaries will be analyzed by the committee. Courts were divided with respect to the bankruptcy court's power to review the U.S. Trustee's decisions on committee membership, but the 2005 amendments to the Bankruptcy Code expressly authorize the bankruptcy court to order changes to committee membership.
4. Even if the creditor's conflicts with other committee members are insufficient to disqualify her, she may be excluded from some discussions. If proposed committee action affects a member, she should disclose her interest and abstain from voting.
1. Professionals for a committee are bound by the same fiduciary responsibilities as committee members. Committee counsel must use due care in the performance of duties assumed, seeing to it that creditors' interests are considered fairly.
This outline is adapted from Chapter 27, Ethical Responsibilities, Norton Bankruptcy Law & Practice 2d (Thomson-West 2005)
