In Cinemax, the U.S. Bankruptcy Court for the Southern District of Florida denied a creditor’s motion seeking the appointment of an unsecured creditors’ committee, concluding that the movant failed to establish sufficient cause for such an appointment, especially in light of the limited complexity of the case and the oversight already provided by the Subchapter V trustee.

---

In a recent decision, In re Cinemex Holdings USA, 672 B.R. 53 (Bankr. S.D. Fla. 2025), a Florida bankruptcy court articulated a seven-factor test for determining when “cause” exists to appoint an official committee of unsecured creditors in a Subchapter V Chapter 11 case. In Cinemax, the U.S. Bankruptcy Court for the Southern District of Florida denied a creditor’s motion seeking the appointment of an unsecured creditors’ committee, concluding that the movant failed to establish sufficient cause for such an appointment, especially in light of the limited complexity of the case and the oversight already provided by the Subchapter V trustee.

Facts and Procedural History

In this case, the debtors, Cinemex Holdings USA, Inc., CMX Cinemas, LLC, and CB Theater Experience LLC, operated 28 movie theaters across eight states. Notably, the debtors had previously filed for Chapter 11 protection in April 2020 following the COVID-19 pandemic, which shuttered all of their movie theaters. That earlier bankruptcy culminated in the confirmation of a plan of reorganization in November 2020.

Unfortunately, the debtors’ prior reorganizational efforts failed and on June 30, 2025, the debtors returned to bankruptcy court, this time filing under Subchapter V of Chapter 11. In their 2025 bankruptcy case, the debtors sought to determine which theaters were profitable, renegotiate or reject leases as needed, and renegotiate revenue-sharing agreements with studios to rebalance what had become an economically untenable business model for movie theaters, like the debtors. As of the petition date, the debtors scheduled total noncontingent, liquidated, non-affiliate obligations of approximately $1.9 million. The debtors also disclosed a $50 million secured claim held by their parent entity. On July 2, 2025, a Subchapter V trustee was appointed.

On July 22, 2025, one of the debtor’s creditors, MN Theaters 2006 LLC (MN Theaters), moved for the appointment of an official committee of unsecured creditors. In its motion, MN Theaters asserted that “strong cause” existed for the appointment of a committee, even though this was a Subchapter V case.

First, MN Theaters raised questions about the debtors’ eligibility for Subchapter V. Second, it argued that unsecured creditors lacked representation in the absence of an official committee. Third, MN Theaters contended that the $50 million secured claim held by the debtors’ parent entity should be investigated by a committee because the debt might be subject to a recharacterization claim and, ultimately, be determined by the Bankruptcy Court to be equity rather than a secured claim. In the alternative, MN Theaters requested that the Bankruptcy Court expand the Subchapter V trustee’s duties under 11 U.S.C. Section 1183(b)(2) to include the investigation and reporting duties set forth in 11 U.S.C. Sections 1106(a)(3)–-(4).

The debtors opposed the motion and argued that MN Theaters had not met its burden of establishing cause. They asserted that the eligibility concerns were unsupported, that the Subchapter V trustee already performed many functions typically carried out by a creditors’ committee and that existing Subchapter V tools were sufficient to investigate the insider debt.

The Bankruptcy Court's Decision

In rejecting MN Theaters’ motion, the Bankruptcy Court first examined the legislative history behind Subchapter V and found that the Small Business Reorganization Act of 2019, which became effective on Feb. 19, 2020, created Subchapter V to establish “an expedited process for small business debtors to reorganize quickly, inexpensively, and efficiently.” As noted by the Bankruptcy Court, one of the defining features of Subchapter V is the elimination of the mandatory creditors’ committee , which is unique compared to a normal Chapter 11 case where an official committee of unsecured creditors is routinely appointed. In fact, in a Subchapter V case, a committee is appointed only “for cause.”

Notwithstanding the elimination of a mandatory appointment of a creditors’ committee, the Bankruptcy Court observed that in lieu of a committee, Subchapter V provides for the automatic appointment of a Subchapter V trustee, whose mandatory duties include examining proofs of claim, providing information to parties in interest, and facilitating the development of a consensual plan.

Turning to the issue of “cause,” the Bankruptcy Court noted that the Bankruptcy Code does not define what constitutes “cause” in relation to the appointment of a committee in a Subchapter V case. Nevertheless, the Bankruptcy Court reviewed the limited case law on point, beginning with the case of In re Bonert, 619 B.R. 248 (Bankr. C.D. Cal. 2020). In Bonert, a Subchapter V case, the court observed that “cause” requires a showing that a committee’s “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.”

The Bankruptcy Court also reviewed and discussed the holding in the case of In re Sharity Ministries, Case No. 21-11001 (Bankr. D. Del. 2021). In Sharity, which the Bankruptcy Court found to be the only case in which a committee was appointed in a Subchapter V proceeding, the court ordered the appointment of a member committee so that approximately 10,000 members could “have a voice.” That case, however, involved allegations of gross mismanagement, unlicensed insurance operations, and misleading of members, with multiple state regulators joining in the U.S. Trustee’s request.

When compared to the facts before it, the Bankruptcy Court found that the Cinemexcase had none of the extraordinary circumstances present in Sharity and, thus, was distinguishable from that case.

Finding no existing framework to guide it, the Bankruptcy Court looked to related Subchapter V provisions. In particular, the Bankruptcy Court examined provisions governing the expansion of a Subchapter V trustee’s duties under Section 1183(b)(2) and the removal of a Subchapter V debtor in possession under Section 1185. The Bankruptcy Court observed that grounds for expanding a trustee’s authority include “substantial issues about potential insider claims ... significant questions such as the debtor’s true financial condition, what property is property of the estate, the debtor's management of the estate as debtor in possession, and the accuracy and completeness of the debtor's disclosures and reports.” See In re Cinemex Holdings USA, 672 B.R. 53, 59 (Bankr. S.D. Fla. 2025) (quoting In re Corinthian Communications,642 B.R. 224, 233 (Bankr. S.D.N.Y. 2022)).

In light of these provisions along with the broader policy objectives of Subchapter V, the Bankruptcy Court found that in deciding on whether to appoint a committee, a court must balance the potential cost of appointing a committee against the need to protect the creditors’ interests, while also considering the enhanced role of the Subchapter V trustee.

Furthermore, the Bankruptcy Court articulated the following nonexclusive list of factors, a court should use when deciding to appoint a creditors’ committee in Subchapter V:

• the size and complexity of the case, including whether the case more closely resembles a traditional Chapter 11 case;
• the number of creditors involved 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;
• whether any other creditor or party in interest supports the requested relief; and
• whether there are any other factors that would interfere with the Subchapter V trustee’s ability to perform his or her statutory duties effectively.

Applying these factors to the facts before it, the Bankruptcy Court concluded that MN Theaters failed to establish sufficient cause. The Bankruptcy Court found that the Cinemax case was not complex. Although the debtors had previously reorganized under Chapter 11, the instant Subchapter V cases had the “primary and limited goal of shedding leases,” of which there were only 28. The Bankruptcy Court also rejected the argument that the amount of the debtors’ unsecured debt being close to the Subchapter V debt ceiling warranted the appointment of a committee. The Bankruptcy Court explained that if the debtors qualify for Subchapter V, “they qualify, even if only one penny under the ceiling.” The Bankruptcy Court also found that the need for a “unified voice” was unsupported by the number or nature of the creditors, which was rather limited (as compared to the Sharity case), numbering in the hundreds at most.

With respect to the $50 million intercompany claim, the Bankruptcy Court concluded that the Subchapter V trustee had authority under the Bankruptcy Code to investigate the insider debt and object to any improper claim. Moreover, at that point in time, the potential recharacterization issue was premature as the debtors had yet to file a plan indicating how the debtors intended to treat the insider claim. Finally, the Bankruptcy Court noted that no other party in interest joined in MN Theaters’ motion, and that no other factor existed that would interfere with the Subchapter V trustee’s exercise of its statutory duties.

Commentary and Impact

This decision is a significant development for Subchapter V practice as it fills a notable gap in the law where courts and practitioners have had little guidance regarding the circumstances under which a committee should be appointed in Subchapter V cases.

One of the notable features of Subchapter V has been the absence of a mandatory creditors' committee, a design choice intended to reduce the cost and complexity of small business reorganizations. However, as many astute bankruptcy practitioners stretch the usage of what constitutes a small business reorganization, coupled with the statute’s use of the undefined term “for cause,” both courts and practitioners were left with considerable uncertainty as to when a court might order the appointment of a committee. The Cinemex decision provides an analytical framework for addressing that question.

The seven-factor test is significant for several reasons. First, it is non-exclusive, allowing courts flexibility to consider the unique circumstances of each case. Second, it reflects the policy underlying Subchapter V, namely, to achieve an efficient and cost-effective reorganization.

Creditors seeking the appointment of a committee in a Subchapter V case will likely need to demonstrate, on a factual/evidentiary basis, that the case presents circumstances warranting the additional cost and administrative burden of committee involvement. General concerns about creditor representation or the existence of insider claims, standing alone, are unlikely to suffice. The Bankruptcy Court’s emphasis on the Subchapter V trustee’s role also suggests that movants will need to show why the trustee’s existing or expanded powers are insufficient to address their concerns.

Conversely, debtors electing Subchapter V may view the decision as reinforcing the statute’s purpose of limiting unnecessary administrative costs. At the same time, the court denied the motion “without prejudice,” leaving open the possibility that changed circumstances could renew the issue.

As Subchapter V jurisprudence continues to evolve, the Cinemex decision will likely serve as an early reference point for courts evaluating committee appointment requests. Whether other courts adopt, modify, or reject the seven-factor framework remains to be seen, but the opinion provides meaningful guidance in an area where little guidance previously existed.

Lawrence J. Kotler is a partner and co-chair of the bankruptcy and fiduciary representations division of the business reorganization and financial restructuring practice group at Duane Morris.

Hunter C. Blume is an associate in the firm's business reorganization and financial restructuring practice group. She represents clients in complex restructuring matters and brings experience in litigation, negotiation, and dispute resolution.

Reprinted with permission from The Legal Intelligencer, © ALM Media Properties LLC. All rights reserved.