On August 12, 2009, the Advisory Committee on the Federal Rules of Bankruptcy Procedure (Advisory Committee) proposed a significant revision of Federal Rule of Bankruptcy Procedure 2019 (Rule 2019), the rule that in its current form requires disclosure by an “entity or committee representing more than one creditor” of the identity of each creditor involved, the nature and amount of its interest, the times when the entity’s interests were acquired and the amounts paid for them. The proposed amendment would clarify that every entity that plays an active part in a bankruptcy proceeding is at least potentially subject to a requirement to disclose a wide range of information of the sort that distressed debt hedge funds and other bankruptcy investors have long sought to keep proprietary. Comments on the proposed revision are due by February 16, 2010. The proposed rule revision would change the bankruptcy investing game in three principal ways: (1) it would widen the scope of who must disclose under Rule 2019; (2) it would widen the scope of what must be disclosed; and (3) it would give bankruptcy courts wider discretion to relieve or abridge disclosure obligations, especially disclosure regarding the prices of assets purchased in secondary market trading. This article discusses the proposed revision in depth, focusing on the potential consequences for hedge funds that invest in and around bankruptcies. This article is the third in a three-part series on Rule 2019, and its impact on hedge fund strategies. For the two previous installments in the series, see “How Can Hedge Funds that Invest in Distressed Debt Keep their Strategies and Positions Confidential in Light of the Disclosures Required by Federal Rule of Bankruptcy Procedure 2019(a)? (Part One of Three)
,” Hedge Fund Law Report, Vol. 2, No. 34 (Aug. 27, 2009); and “How Can Hedge Funds that Invest in Distressed Debt Keep Their Strategies and Positions Confidential in Light of the Disclosures Required by Federal Rule of Bankruptcy Procedure 2019(a)? (Part Two of Three)
,” Hedge Fund Law Report, Vol. 2, No. 36 (Sep. 9, 2009).