## Facts

- Wang Laboratories, Inc. filed for Chapter 11 protection in August 1992.
- Morton Salkind, a substantial common shareholder (about 1.6 million Class B shares), sought appointment of an official committee of equity security holders.
- The U.S. Trustee declined to appoint an equity committee, relying on financial disclosures indicating negative equity exceeding $400 million and asserting equity had no interest to represent.
- Equity ownership was large and dispersed, including about 49,000 Class B holders, about 2,000 Class C holders, and an estimated 70,000 beneficial owners.
- The debtor continued operating as a going concern, though at a loss, and its stock continued trading on a national exchange at a price above zero.
- The Chapter 11 case was unusually large and complex, producing extensive filings early in the case (described as 15 binders of documents within three months).
- The Official Unsecured Creditors’ Committee opposed an equity committee, citing administrative cost and asserting such committees are uncommon in large Chapter 11 cases.
- After a hearing, the bankruptcy court granted Salkind’s motion and directed appointment of an equity committee.

## Issues

1. Whether, under 11 U.S.C. § 1102(a)(2), an official committee of equity security holders was necessary to assure adequate representation in the debtor’s Chapter 11 case.
2. Whether apparent balance-sheet insolvency and projected administrative costs justified denying an equity committee despite a large, dispersed shareholder base and a complex reorganization.

## Decision

- The court granted the motion and directed appointment of an official committee of equity security holders.
- The court held that appointment was necessary to assure adequate representation of equity holders under § 1102(a)(2).
- The court treated the debtor’s reported negative equity as relevant but not dispositive of whether equity required representation.
- The court found the combination of dispersed ownership, case complexity, and plausible potential for equity value justified the added expense of an additional committee.

## Legal Principles

- Under 11 U.S.C. § 1102(a)(2), a court may order appointment of an equity committee when necessary to assure adequate representation.
- The determination is case-specific and commonly informed by factors including:
  - the number of equity holders and dispersion of holdings;
  - the size and complexity of the Chapter 11 case; and
  - the cost of an equity committee compared to the potential benefit to equity, including whether equity has a plausible prospect of receiving value.
- Balance-sheet insolvency alone does not automatically preclude an equity committee; the focus is whether equity’s interests are likely to be inadequately represented without an official committee.
- Statistical assertions about how often equity committees are appointed are not controlling; the statutory inquiry turns on the needs of the particular case.

## Conclusion

The bankruptcy court ordered an official equity committee because the debtor’s exceptionally large and dispersed shareholder base, the complexity of the reorganization, and the non-dispositive nature of snapshot insolvency evidence made an organized equity voice necessary to assure adequate representation under § 1102(a)(2).


In re Wang Laboratories, Inc., 149 B.R. 1 (Bankr. D. Mass. 1992)