The city of Detroit wants a U.S. bankruptcy judge to disband a committee appointed to represent unsecured creditors, saying it could disrupt mediation talks aimed at reaching a deal to help the Motor City speed an exit from its record-setting Chapter 9 bankruptcy filing.
Lawyers for Detroit are asking U.S. Bankruptcy Judge Steven Rhodes to disband the official committee of unsecured creditors named by the U.S. Trustee, arguing the committee is discretionary in Chapter 9 cases — unlike corporate Chapter 11 bankruptcies — “and is neither necessary nor prudent in the city's case.”
Rhodes has set a Feb. 19 hearing on the motion, which was filed Friday. The U.S. Trustee is an arm of the Justice Department responsible for overseeing the administration of bankruptcy cases.
Federal mediators have been working for months to reach deals to help speed the city’s plan of adjustment. The mediation team has been working to raise pledges of $370 million from foundations, $350 million from the state and $100 million by the Detroit Institute of Arts in a bid to defray pension losses and protect the city-owned art from sale in bankruptcy.
“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 city said in its filing. “This 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.”
In December, Detroit told the U.S. Trustee it was opposed to the appointment of an official committee of unsecured creditors and said it would not fund any fees or expenses incurred by the committee. The city argues major creditors are already well represented by attorneys — and says creditors like those awaiting income tax refunds don’t need representation, since they will receive their full refunds.
The city separately asked for the appointment of a committee to represent retirees, since some are not represented by unions involved in the bankruptcy.
The city noted that the retiree committee’s legal bills exceeded $1.5 million in September — its first full month of work. At the same rate, the official committee of unsecured creditors could cost $15 million to $20 million through October — and the city would face further legal bills to respond to motions and requests made by the committee.