A number of conflicting decisions by bankruptcy courts during the past two months has stoked the fight over how much debt or equityholders who band together as an unofficial or “ad hoc” group in a Chapter 11 case must disclose about their investments in order to act as a group — including what each group member holds, when it invested and what price it paid.
Hedge funds, distressed investors and other financial institutions often decline to serve on an “official” committee to avoid the trading restrictions usually imposed on committee members. As an alternative, these investors may form a loosely affiliated “unofficial” group in order to speak with a unified voice and share one set of professionals. These groups are coming under heavy scrutiny, however, due to a split among the bankruptcy courts regarding whether ad hoc groups must follow the letter of the disclosure rule, Bankruptcy Rule 2019.
