In re Seaescape Cruises, Ltd. - 131 B.R. 241 (Bankr. S.D. Fla. 1991)

Rule:

A member of a creditors' committee should not be removed unless there is specific evidence that the member has breached or is likely to breach a fiduciary duty to the class of creditors represented by that member.

Although 11 U.S.C.S. § 1102 states no standards regarding who may serve on the creditors' committee, there is nothing in the statute which would prevent service on the creditors' committee of a creditor unsympathetic to the efforts of a debtor to reorganize. A committee's fiduciary obligation extends to members of the unsecured creditor class and not to the debtor.

Facts:

The Debtor Seaescape Cruises, Ltd. was in the cruiseline business, specializing in one day cruises. The Debtor filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code on March 18, 1991. The Committee was appointed by the United States Trustee pursuant to § 1102(a) on May 10, 1991 and were selected from among the Debtor's own lists of unsecured creditors which were included in the Debtor's schedules as filed with the Court. At the time of the formation of the Committee, the United States Trustee was aware that a number of the creditors who were willing to serve on the Committee claimed to hold maritime liens. Notwithstanding this disclosure, the United States Trustee felt that these diverse interests were representative of the types of claims existing in the case and that their appointment to the Committee was not inconsistent with the purpose of Section 1102 of the Bankruptcy Code. The creditor's committee moved to convert the case to a Chapter 7 proceeding. Debtor then objected to the compilation of a committee of unsecured creditors and sought to reconstitute its membership by removing those members with maritime lien claims. 

Issue:

Was the compilation of a committee of unsecured creditors with maritime liens proper?

Answer:

Yes.

Conclusion:

A member of a creditors' committee should not be removed unless there is specific evidence that the member has breached or is likely to breach a fiduciary duty to the class of creditors represented by that member. See In re Microboard Processing, Inc., 95 Bankr. 283, 285 (Bankr. D. Conn. 1989). The fact that the Committee filed a motion to convert the case to a Chapter 7 case or that some of the members have unsuccessfully sought relief from stay to enforce their maritime liens was not sufficient to demonstrate a conflict of interest among the members of the Committee or any breach of fiduciary duty by the Committee to unsecured creditors. Although Section 1102 of the Bankruptcy Code states no standards regarding who may serve on the creditors' committee, there was nothing in the statute which would prevent service on the creditors' committee of a creditor unsympathetic to the efforts of a debtor to reorganize. In re M.H. Corporation, 30 Bankr. 266, 267 (Bankr. S.D. Ohio 1983). A committee's fiduciary obligation extends to members of the unsecured creditor class and not to the debtor. There was no actual conflict of interest existing within the committee as constituted, no member had breached, or was likely to breach, a fiduciary duty to the class of unsecured creditors. The committee and its counsel played an active and productive role and performed its "watchdog" role.