Appointing A Creditors Committee In A Subchapter V Case? (In re Cinemex)

Should an official creditors committee be appointed in a Subchapter V case? That’s the question in In re Cinemex Holdings USA, Inc., Case No. 25-17559, Southern Florida Bankruptcy Court (decided August 28, 2025; Doc. 191).

The In re Cinemex Court denies a motion to appoint a creditor’s committee. What follows is a summary of the Court’s analysis in that Subchapter V case.

Facts

Debtor operates 28 movie theaters in eight different states, and each of the 28 theaters is leased.

On June 30, 2025, Debtor files Subchapter V bankruptcy, and a Subchapter V Trustee is appointed.

Debtor’s goal in the bankruptcy is to distinguish theaters that are profitable from those that are not, renegotiate or reject leases as needed, and renegotiate revenue sharing agreements with studios—all to rebalance and reorder Debtor’s business.

Debtor’s schedules identify:

total non-contingent, liquidated, non-affiliate obligations of approximately $1.9 million; and
a $50 million secured claim held by Debtor’s parent entity.

Motion to Appoint Committee

On July 22, 2025, a Landlord creditor files a Motion for appointment of an official committee of unsecured creditors, citing §1102(a)(3) and § 1181(b).[fn. 1] Landlord’s Motion argues that “strong cause exists” for such appointment because:

there is a question of Debtor’s eligibility for Subchapter V;
unsecured creditors have no unified voice or representation in the absence of an official committee; and
the $50 million secured claim of Debtor’s parent entity should be investigated by a committee because that debt may be recharacterized as equity.

Debtor argues in opposition that Landlord has not met its burden of showing “cause” to appoint a creditors’ committee because:

eligibility concerns are not supported by any evidence, and no objection to eligibility has been filed;
the Subchapter V Trustee already serves many of the roles that a creditors’ committee would serve; and
with respect to the $50 million insider debt, Subchapter V provides tools to examine this debt and challenge it without the administrative expense of an official committee.

The Bankruptcy Court denies Landlord’s Motion.

Analysis

Subchapter V establishes an expedited process for small business debtors to reorganize quickly, inexpensively, and efficiently—in contrast to standard Chapter 11 cases that tend to be “prohibitively expensive.”

Under Subchapter V, a creditors committee can be appointed only “for cause” (see § 1102(a)(3)). By contrast, standard Chapter 11 requires appointment of a creditors committee in every case, unless the local U.S. trustee cannot find unsecured creditors willing to serve (see § 1102(a)(1)).

Instead of a committee, Subchapter V requires the appointment of a Subchapter V trustee, whose duties include examining proofs of claim, furnishing information to parties in interest, and facilitating the development of a consensual plan (see §1183(b)(1)&(7) & § 704(a)(5) & (7)). Such trustee role:

provides oversight by a neutral third party; and
so, the appointment of a committee in Subchapter V is, (i) less necessary to protect the interests of unsecured creditors, and (ii) disfavored.

The Bankruptcy Code does not specify what constitutes “cause” to appoint a creditors’ committee in a Subchapter V case, and whether to do so is within the bankruptcy court’s discretion.

Case Law

Because of the newness of Subchapter V, case law on appointing a creditors committee is sparse. But what follows is a summary of two cases thereon.

–In re Bonert

In re Bonert, Case No. 2:19-bk-20836; Doc. 268 (Bankr. C.D. Cal. June 3, 2020), is an early case in Subchapter V’s existence. Here’s what happened:

on September 12, 2019, debtor files a voluntary petition under standard Chapter 11—because Subchapter V is not yet in effect;
on February 19, 2020, Subchapter V becomes effective;
on February 20, 2020, a creditors committee is appointed in debtor’s standard Chapter 11 case (see Doc. 128);
on March 3, 2020, debtor elects to proceed in Subchapter V (see Doc. 185);
the creditors committee objects to the Subchapter V election (Doc. 242 & 267);
the Bankruptcy Court declines to appoint a committee but declares:
- “The Committee will not be disbanded if it can demonstrate that its continued existence will improve recoveries to creditors, will assist in the prompt resolution of this case, and is necessary to provide effective oversight of the Debtors” (Doc. 268, at 4 of 8); and
ultimately, the committee does not oppose its own disbandment.

–In re Sharity

In re Sharity Ministries Inc., Case No. 21-11001, Transcript of Aug. 9, 2021 Hr’g. Doc. #130 at 60-63 (Bankr. D. Del. Aug. 10, 2021)) is the sole known Subchapter V case in which a creditors committee is appointed. In that case, according to news reports:

10,000 families buy into a “HealthShare” arrangement and end up with unpaid medical bills totaling more than $50 million when the organization providing that arrangement files bankruptcy; and
before filing, the organization faces class-action lawsuits and cease and desist orders (as an unauthorized insurance provider) in several states—and is called a “sham front group” for the for-profit health care management company Aliera.

In the Sharity bankruptcy, a judge orders the appointment of a creditors committee so the 10,000 claimants can “have a voice” in their treatment without each individual incuring the costs of doing so.

The committee appointment comes after the U.S. Trustee seeks to remove the debtor from possession or to authorize the Subchapter V trustee to investigate debtor’s financial affairs. The U.S. Trustee:

argues that “cause” exists because debtor is grossly and incompetently managing its affairs to the detriment of stakeholders; and
provides evidence of debtor misleading claimants, operating as an insurance company without a license, and using claimant contributions to pay a third party rather than claimants’ medical expenses.

The states of California, Massachusetts, Texas, Washington, Wisconsin, New Hampshire and New York, join in the U.S. Trustee’s requests.

It is against such a backdrop that the Sharity court issues a verbal order from the bench:

expanding the Subchapter V trustee’s role to include investigating debtor’s financial affairs;
appointing a committee of claimants; and
deferring appointment of a liquidating trustee until the committee has an opportunity to weigh in.[Fn. 2]

Further Guidance

Additionally, the Court finds that guidance on the committee appointment issue comes from provisions on expanding a Subchapter V trustee’s duties under § 1183(b)(2) and provisions on removing a Subchapter V debtor from possession under §1185. Such guidance includes the following.

Under § 1183(b)(2), the Court may “for cause” order the expansion of a Subchapter V trustee’s powers to investigate the “acts, conduct, assets, liabilities, and financial condition of the debtor” and to report on the investigation, especially as to facts “pertaining to fraud, dishonest, incompetence, misconduct or mismanagement.” Grounds for such an expansion of authority include:

substantial issues about potential insider claims; and
significant questions about:
- debtor’s true financial condition and what property is property of the estate;
- debtor’s management of the estate and the accuracy and completeness of the debtor’s disclosures and reports” (see, In re Corinthian Communications, Inc., 642 B.R. 224, 233 (Bankr. S.D.N.Y. 2022)).

Under § 1185, the standard of “cause” for removal of a Subchapter V debtor from possession is something greater than the “for cause” standard for expanding the trustee’s powers under § 1183(b)(2). “Cause” under § 1185(a) to remove a Subchapter V debtor from possession includes “fraud, dishonesty, incompetence, or gross mismanagement of the affairs of the debtor, either before or after the date of commencement of the case … or for failure to perform the obligations of the debtor under a plan confirmed under this subchapter;” but

And so, “cause” for appointing a committee in Subchapter V cases, under 1102(a)(3), must take into account the protecting function for unsecured creditors that already exists from appointment of the Subchapter V trustee — and must consider all relevant facts and circumstances:

Exercising Discretion

–Balancing Needs

In exercising its discretion on a committee appointment question, the court must balance (i) the needs of moving the case forward and controlling costs, against (ii) the needs of the creditors.

The following non-exclusive list of factors should be considered by a court in determining whether “cause” exists to appoint a creditors’ committee in a Subchapter V case:

the size and complexity of the case (i.e., whether the case resembles a standard Chapter 11 case);
the number of creditors involved in the case and the nature of their debt;
the nature of the debtor’s assets;
the nature of the debtor’s business and how it is regulated;
the amount of secured debt, the number of secured creditors, and the nature of the collateral in which creditors assert liens;
whether and to what extent any other creditor or other party in interest supports the relief requested; and
whether there are any other factors present in the case that would interfere with the ability of the Subchapter V trustee to perform normal statutory duties effectively.

–Applying to this Case

In applying such factors to this case, the Court finds that Landlord has not established sufficient cause to appoint a creditors’ committee at this time, for several reasons.

First, this case is not complex. It is before the Court with the primary and limited goal of shedding leases (of which there are only 28)—that is not complicated.

Second, Landlord’s argument that the amount of Debtor’s unsecured debt is “close to the debt ceiling”, even if true, is not persuasive. Congress set the debt limit, and a debtor can qualify by being only one penny under the ceiling.

Third, Landlord’s argument that the unsecured creditors in these cases need a “unified voice” is not supported by the number of creditors or the nature of their debt:

unsecured creditors here are primarily landlords, with some vendors;
the number of scheduled creditors is in the hundreds at most; and
these cases are not like the one in Sharity where there were 10,000 members that needed a “unified voice.”

Fourth, Landlord’s argument that the $50 million intercompany debt needs to be investigated by a committee is not “cause” for appointment of a committee. The Subchapter V Trustee can investigate and object to the allowance of any improper claim. And because no plan has been filed yet, no one even knows how Debtor proposes to treat the insider claim—once a plan is filed, Landlord and the Subchapter V Trustee can object.

Fifth, no other party in interest has joined Landlord’s Motion to appoint a committee.

Sixth, there is no other factor present that would interfere with the Subchapter V Trustee’s exercise of normal statutory duties.

Conclusion

Very interesting.

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Footnote 1. 11 U.S.C. § 1102(a)(3) says: “(3) Unless the court for cause orders otherwise, a committee of creditors may not be appointed in a small business case or a case under subchapter V of this chapter.” And such subsection is omitted from the list in 11 U.S.C. § 1181(b) that says: “Unless the court for cause orders otherwise, paragraphs (1), (2), and (4) of section 1102(a) . . . of this title do not apply in a case under this subchapter” (emphasis added).

Footnote 2. Here are quotes from the transcript of the Court’s oral ruling (at 60-63):

“Clearly, this case is highly unusual, to say the least . . . it’s a mess.”
“The paramount issue for this case is clearly how the members are going to be treated and I think it is important that those members have a voice in how they are going to be treated without individual members having to incur the costs of doing so.”
“So, number one, I am going to direct the appointment of a member committee.” “Clearly, there’s significant issues involving how the company was managed prepetition.”
“and there’s open questions about how the case has progressed to date, but while reasonable people might disagree with the way the case has moved so far, I’m not yet prepared to remove the debtors as debtor-in-possession.” “I’m not going to deny the motion at this point either, I’m going to hold that motion in abeyance for now until we see how things move over the next few weeks.”
“I am going to increase the powers of the Subchapter V trustee to investigate the financial affairs of the debtor.” “She will also have the power to investigate whether the debtors are eligible for Subchapter V status and whether or not current employees . . . are necessary or not to the operations of the debtors at this point given where this case is heading and whether we can save some money by eliminating those positions if they’re no longer needed.”
“I’m going to reserve a ruling on appointing the Subchapter V trustee as the liquidating trustee because I’ve appointed a member committee and that member committee should have some say in that. So I’m going to wait on that issue until the member committee can have an opportunity to weigh in.”

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