The second half of 2016 saw a surge in the number of requests to form official equity committees, especially in commodity-related restructurings. This most recent restructuring cycle began in August 2015 and remains active. At the start of this cycle, the price of oil was $44 per barrel, down from a $100 per barrel in July 2015. In January 2016, the price of oil began to recover from its low of $28 per barrel and steadily climbed to $53 per barrel by the start of 2017. During the same period, other commodity prices followed a similar trend. Not surprisingly, with the improvement in volatile commodity prices, equityholders became more vocal in restructurings.

This article focuses on five commodity-related restructurings from the past year — Horsehead Holdings, Energy XXI, Breitburn, Sandridge Energy and CJ Holding — and examines the particular factors that shaped the courts’ decisions to grant (or deny) the request for appointment of an equity committee. What has become apparent is that valuation alone will not carry the day. However, even if it is not entirely clear that equityholders will receive a recovery through a chapter 11 plan, a bankruptcy court may choose to appoint an equity committee in order to ensure that value is preserved for such parties-in-interest. As will be discussed in greater detail, bankruptcy courts (as courts of equity) will exercise their discretion and appoint an equity committee under the right set of circumstances, but the courts will carefully manage an estate’s administrative costs and deny an equityholder’s request if the court does not believe that the movant will “add something” to the case.

Originally published in ABI Jornal on March 1, 2017.