To amend title 11 of the United States Code to provide fair treatment of employee benefits.
Current Legislation
House - Introduced Bills
October 2, 2002
Description:
To amend title 11 of the United States Code to prevent corporate bankruptcy abuse and provide greater protection for employees, and for other purposes.
September 26, 2002
Description:
There are 4 versions of Bill Number H.R.5472 for the 107th Congress.
September 26, 2002
Description:
There are 4 versions of Bill Number H.R.5472 for the 107th Congress.
September 26, 2002
Description:
Bill 2 of 4
There are 3 other versions of this bill.
Protection of Family Farmers Act of 2002 (Engrossed as Agreed to or Passed by House)
107th CONGRESS
2d Session
H. R. 5472
AN ACT
107th CONGRESS
2d Session
H. R. 5472
AN ACT
There are 4 versions of Bill Number H.R.5472 for the 107th Congress.
THIS SEARCH THIS DOCUMENT GO TO
Next Hit Forward New Bills Search
Prev Hit Back HomePage
Hit List Best Sections Help
Contents Display
Bill 2 of 4
There are 3 other versions of this bill.
| GPO's PDF version of this bill | References to this bill in the Congressional Record | Link to the Bill Summary & Status file. | Printer Friendly Display - 1,567 bytes.[Help] |
Protection of Family Farmers Act of 2002 (Engrossed as Agreed to or Passed by House)
To extend for 6 months the period for which chapter 12 of title 11 of the United States Code is reenacted.
HR 5472 EH
- Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
- This Act may be cited as the `Protection of Family Farmers Act of 2002'.
SEC. 2. 6-MONTH EXTENSION OF PERIOD FOR WHICH CHAPTER 12 OF TITLE 11 OF THE UNITED STATES CODE IS REENACTED.
- (a) AMENDMENTS- Section 149 of title I of division C of Public Law 105-277 is amended--
- (1) by striking `January 1, 2003' each place it appears and inserting `July 1, 2003'; and
- (2) in subsection (a)--
- (A) by striking `May 31, 2002' and inserting `December 31, 2002'; and
- (B) by striking `June 1, 2002' and inserting `January 1, 2003'.
- (b) EFFECTIVE DATE- The amendments made by subsection (a) shall take effect on January 1, 2003.
Passed the House of Representatives October 1, 2002.
Attest:
Clerk.
September 26, 2002
Description:
There are 4 versions of Bill Number H.R.5472 for the 107th Congress.
September 9, 2002
Description:
To amend title 11 of the United States Code to protect family farmers and family fishermen.
September 9, 2002
Description:
H.R. 5348 Would Make Chapter 12 Permanent (Written by Prof. G. Ray Warner)
HR 5348 Would Make Chapter 12 Permanent
A
bill introduced by Representative Baldwin (D-Wisconsin) on September 9, 2002,
would make the Chapter 12 “family farmer” provisions a permanent
form of bankruptcy relief and would extend the chapter’s coverage to include
“family fishermen.”
The provisions of this stand-alone bill are almost identical to the
Chapter 12 provisions of the pending Bankruptcy Abuse Prevention and Consumer
Protection Act of 2002, and the bill could provide a vehicle to enact the
Chapter 12 amendments if the comprehensive reform bill remains deadlocked. Without new legislation, Chapter 12 is
scheduled to sunset on December 31, 2002.
Like
the provisions of the Bankruptcy Abuse Prevention bill, this bill would expand
eligibility for Chapter 12 in several ways. The family farmer eligibility debt limit would increase from
$1,500,000 to $3,237,000, subject to future automatic cost of living increases
under section 104 of the Code. In
addition, the bill would reduce the percentage of liabilities that must arise
from the farming operation from 80 percent to 50 percent and would relax the
farm income requirement so that a debtor would be eligible for Chapter 12 if
more than 50 percent of the debtor’s gross income was derived from a
farming operation in either the taxable year before filing, or both the second
and third tax years prior to filing.
The new “family
fisherman” definition would apply to a debtor engaged in a commercial
fishing operation and includes requirements analogous to those in the current
family farmer definition.
Interestingly, the new family fisherman definition does not include the
relaxed standards that the bill would add to the family farmer definition. Thus, for instance, the debt
eligibility limit for family fisherman would be $1,500,000, and would not be
subject to automatic cost of living adjustments.
The
bill would make two other significant changes to Chapter 12. First, if the debtor’s disposable
income exceeded the projected disposable income upon which the plan was based,
the modification of the plan would be prospective only. The debtor could not be required to
make monthly payments that exceed current disposable income in order to make up
for the excess disposable income earned prior to plan modification. In addition, the debtor could not be
forced to increase plan payments in the final year of the plan if the
modification would leave the debtor with insufficient funds to carry on the
farming operation after the plan is completed.
The
second change would allow the debtor to treat governmental claims that arise
from the disposition of farm assets as unsecured non-priority claims. This provision would address the
problem created when the farmer recognizes a taxable gain when a
fully-encumbered, appreciated asset is abandoned, sold or foreclosed upon. The priority status of the resulting
tax liability could doom the reorganization effort if the debtor cannot pay the
liability in full within the plan period.
The amendment also appears to make such tax debts dischargeable because
the section 523(a)(1) “tax” exception to discharge refers to the
tax claims that have priority under section 507(a)(8). The provision is not limited to tax
claims and may have broader application.
However, this treatment of the claim occurs only if the debtor actually
receives a discharge.
The
amendments proposed by this bill would become effective immediately, but would
not apply to cases filed before the bill becomes effective.
Prof. G. Ray Warner, ABI Resident Scholar, Professor of Law
at the University of Missouri-Kansas City.
July 30, 2002
Description:
S. 2820 Would Increase Wage Priority and Recover Unjust Compensation
S. 2820 Would Increase Wage Priority and Recover Unjust Compensation
A
bill introduced by Senator Carnahan (D-Missouri) and co-sponsored by Senators
Kennedy (D-Massachusetts) and Leahy (D-Vermont) on July 30, 2002, would
increase the dollar amounts for the section 507(a)(3 & 4) wage and employee
benefits priorities to $13,500 from the current cost of living adjusted amount
of $4,650. This is the same change
proposed by the pending Employee Abuse Prevention Act of 2002 (S. 2798 and H.R.
5221) that was introduced by Senator Durbin and Rep. Delahunt. The current limit has come under attack
recently in such high profile cases as Enron and Worldcom. In Enron, the bankruptcy court approved
priority wage payments that exceeded the current $4,650 limit and a similar
motion is pending in the Worldcom case.
In addition to increasing the wage
and employee benefits priority, the bill would also amend the section 547
preference provision to permit recovery of transfers of
"compensation" made within 90 days before bankruptcy to present or
former employees, officers, or directors.
In order to be recoverable, such compensation must be shown to be either
"out of the ordinary course of business" or "unjust enrichment." Although this provision would be added
to the preference section, it would not technically be a preference since the
section would permit recovery of compensation even if the debtor was solvent
and even if there was no pre-existing debt owed to the employee, officer, or
director. Although the
Durbin-Delahunt bill also would allow recovery of excessive compensation, its
provisions are substantially different from the provisions of S. 2820.
Since the term
"compensation" limits the class of transfers that can be recovered
under S. 2820 and since that term is not defined, it is not clear whether this
provision would apply to transactions such as sweetheart loans to executives
and the forgiveness of such loans that have recently drawn scrutiny.
Similarly, it is unclear how the
avoidance standards would apply. The
non-ordinary course test, if applied strictly, might result in the avoidance of
payments made to rank and file employees, such as the non-ordinary course
payment of all earned but unpaid wages on the eve of bankruptcy. It might also result in the avoidance
of completely proper compensation arrangements merely because the debtor's
financial condition required it to resort to unusual compensation schemes as
its condition worsened.
It is unclear whether the
alternative "unjust enrichment" standard is meant to incorporate the
common law contract doctrine of unjust enrichment or to provide wide discretion
to bankruptcy judges to avoid compensation deemed excessive. If it merely allows recovery of
compensation in cases where the compensation was excessive, it adds little to
the section 548 power to avoid constructively fraudulent transfers where the
debtor received less that a reasonably equivalent value. Unlike section 548, the amendment would
allow recovery even if the debtor was solvent and might allow recovery where
excessive compensation was paid pursuant to a contract entered into before the
one-year look-back period under section 548.
The
bill has been referred to the Committee on the Judiciary.
Prof. G. Ray Warner, ABI Resident Scholar, Professor of Law
at the University of Missouri-Kansas City.
January 1, 2002
Description:
H.R. 5525 Would Increase Wage Priority And Recover Excessive Insider Compensation (Written by Prof. G. Ray Warner)
H.R. 5525 Would Increase Wage Priority And Recover
Excessive Insider Compensation
By: Prof. G. Ray Warner
Robert M. Zinman American Bankruptcy Institute Scholar in Residence
On October 2, 2002, Representative Gekas
(R-PA) introduced H.R. 5525, the “Corporate Abuse Prevention and Employee
Protection Act of 2002.”
Like several pending bills introduced in both houses of Congress by both
Republicans and Democrats, the Gekas bill would increase the wage priority,
enhance the trustee’s powers to recover excessive pre-petition
compensation paid to insiders, and protect retiree benefits. Unlike some of the competing bills,
this bill would not apply to pending cases. The bill was referred to the Committee on the Judiciary.
Increased Wage Priority
The bill would increase the section 507(a)(3) wage priority
and the section 507(a)(4) employee benefits priority from $4,650 to $10,000,
and would extend the time period during which wages could qualify for priority
from 90 days to 180 days. This
amendment would apply to cases filed on or after the date of enactment. Since few employees will continue
working without pay for an extended period, the principal effect of extending
the time period to 180 days is that a greater portion of unpaid vacation,
severance, and sick leave pay will be entitled to priority. In contrast, the recently introduced
substitute for the Durbin-Delahunt bill, S. 2798, would increase the priority
to $13,500 and would include all severance pay, not just the portion that
accrued during the 180-day period.
Retiree Health Benefits
Current section 1114 prevents a Chapter 11 debtor from
unilaterally modifying certain retiree benefits, such as retiree health
insurance, during the case unless an authorized retiree representative is
appointed and agrees to the modification, or the court authorizes the
modification as necessary to the reorganization. The bill would amend section
1114 to prevent debtors from evading its requirements by terminating retiree
benefit plans on the eve of bankruptcy. The bill would require retroactive
reinstatement of retiree benefits that were modified within 180 days before
filing if the debtor was insolvent on the date of the modification, unless the
court finds that the balance of the equities clearly favors the modification. This amendment would apply to cases
filed on or after the date of enactment.
Enhanced Avoidance of Fraudulent Transfers and Excessive Compensation
The bill would also enhance the recovery of avoidable transfers and
excessive pre-petition insider compensation. Two changes would make it easier
for the estate to avoid pre-petition transfers. First, the one-year reach-back
period for fraudulent transfers under section 548 would be extended to two
years. Thus, the estate could avoid both actual fraudulent transfers and
constructive fraudulent transfers (transfers for less than reasonably
equivalent value when the debtor is insolvent) if they occurred within two
years before bankruptcy. This change would have relatively little impact in
most cases since most such transfers already could be avoided under section
544(b) using very similar state fraudulent transfer laws. The provision would
enhance the estate’s recovery in those cases where the state law was less
expansive than section 548.
The bill would also expand section 548 to allow the recovery
of excessive insider compensation during the two years prior to
bankruptcy. In order to be
avoidable, the transfer or obligation would have to satisfy four conditions:
(1) the transfer or obligation must arise under an “employment
contract;” (2) it must be to or for the benefit of an insider, including
officers and directors of the debtor; (3) the debtor must have received less
than a reasonably equivalent value in exchange for the transfer or obligation;
and (4) the transfer or obligation must be outside of the ordinary course of
business. Since the current
provisions of section 548 could reach many of the transfers and obligations
addressed by the amendment, the change will have limited effect. The principal differences between the
amendment and current law are that the amendment would extend the reach-back
period from one year to two years and would allow recovery in cases where the
debtor was not insolvent but the transfer or obligation was outside the
ordinary course of business.
However, since the section 548(a)(1)(B)(ii) constructive fraud provision
already includes prospective insolvency (unreasonably small capital and
expectation of incurring debts beyond ability to repay) as an alternative to
insolvency, there will likely be few cases where the estate will need to rely
upon the new “non-ordinary course” alternative to insolvency.
The amendment expanding the section 548 reach-back period to
two years has a delayed effective date and will apply to cases filed one year
or more after the date of enactment. The remaining changes to section 548 apply to cases
filed on or after the date of enactment.
July 26, 2001
Description:
To provide for the continuation of agricultural programs through fiscal year 2011.
July 26, 2001
Description:
To provide for the continuation of agricultural programs through fiscal year 2011.
July 26, 2001
Description:
To provide for the continuation of agricultural programs through fiscal year 2011.
July 26, 2001
Description:
To provide for the continuation of agricultural programs through fiscal year 2011.
July 26, 2001
Description:
To provide for the continuation of agricultural programs through fiscal year 2011.
July 26, 2001
Description:
To provide for the continuation of agricultural programs through fiscal year 2011.
July 26, 2001
Description:
To provide for the continuation of agricultural programs through fiscal year 2011.
July 24, 2001
Description:
To authorize appropriations for the Department of Justice for fiscal year 2002, and for other purposes.
July 11, 2001
Description:
To make improvements in the operation and administration of the Federal courts, and for other purposes.
June 28, 2001
Description:
To amend title 49, United States Code, to preserve nonstop air service to and from Ronald Reagan Washington National Airport for certain communities in cases of airline bankruptcy. (Introduced in House)
March 22, 2001
Description:
To amend the Internal Revenue Code of 1986 to exclude from gross income gain on the sale of a family farming business to a family member.
January 31, 2001
Description:
To amend title 11, United States Code, and for other purposes.
January 31, 2001
Description:
To amend title 11, United States Code, and for other purposes.
January 31, 2001
Description:
To amend title 11, United States Code, and for other purposes.
January 31, 2001
Description:
To amend title 11, United States Code, and for other purposes.
January 31, 2001
Description:
To amend title 11, United States Code, and for other purposes.
January 31, 2001
Description:
Bankruptcy Abuse Prevention and Consumer Protection Act OF 2001 -- (House of Representatives - January 31, 2001)
BANKRUPTCY ABUSE PREVENTION AND CONSUMER PROTECTION ACT OF 2001 --
(House of Representatives - January 31, 2001)
[Page: H133] GPO's PDF---
The SPEAKER pro tempore. Under a previous order of
the House, the gentleman from Pennsylvania (Mr. GEKAS) is
recognized for 5 minutes.
Mr. GEKAS. Mr. Speaker, the purpose of the special
order to which I am attached today is to announce the introduction of
the new bankruptcy reform act that we hope will be enacted into law
during this current session and swiftly to arrive at the President's
desk for signature. We are naming the new effort the Bankruptcy Abuse
Prevention and Consumer Protection Act of 2001, and we have over 50
cosponsors already even at the early stages of this session to help us
shepherd through much-needed bankruptcy
reform.
Mr. Speaker, my colleagues will recall that in the
waning days of the last session, the House by voice vote and the Senate
by an overwhelming vote of 70 to 28 approved the bankruptcy bill of the
last term only to have it vetoed by President Clinton in the last days
of the congressional session during the year 2000. So we have to start
all over again.
In starting all over again, Mr. Speaker, we are
adopting as the starting vehicle about 99 and 44/100 percent of the bill
that was approved in the last days of the last session by both the House
and the Senate, which was of course veto-proof. In the previous House
vote, there were 315 votes, well over the veto-proof level, and in the
Senate it was 70 over something which also allows for veto override.
Happily, we may not require a veto-proof majority in this current
session because we believe
that bankruptcy reform could be part and parcel of President Bush's
overall plan to meet the unstable economy head on to prevent some of the
worst consequences of an economic downturn. It fits in perfectly.
Two main themes are part of the new bankruptcy
reform effort to which I allude. These same two themes guided our
actions from the very beginning. The first theme, and the most important
one, is that it is tailored to make certain that anyone who is so
overwhelmed by debt, so swamped by the inability to pay one's
obligations that that individual after a good close look at his
circumstances would be entitled to a fresh start, to be discharged in
bankruptcy, to be free of the debts that so overwhelmed
him. That is a salient feature of this bankruptcy reform bill and the
ones that we were able to get these favorable votes to accomplish in the
last two sessions.
So we never lose sight of, nor will we ever lose
sight of, the real purpose of bankruptcy reform or any bankruptcy
legislation to allow an American citizen the right to gain a fresh start
after finding himself incapable of meeting his obligations. But the
other tandem theme that is also part of what we have been doing for the
last 3 years, and which will be an important feature of the new bill,
will be that certain provisions will be put into place which will make
certain that those people who
have an ability to repay some of their debts will be compelled to do so,
so that instead of a Chapter 7 filing which will give that automatic
almost-fresh start, we will be able to shepherd some of the debtors into
Chapter 13 and propose a plan and adopt a plan by which they could over
a period of time repay some of the debt out of their then-current
earnings.
[Page: H134] GPO's PDF
This is a well-balanced concept which we are
presenting to the American people and to the Congress so that we can
help join in the fight to make sure that our economy remains stable
throughout the ensuing several years and into the next decade.
Some of the contentious features that we found
occurred on the floor of the House and in committee throughout the last
3 years have been so well settled now and are part and parcel of the new
proposal that we believe that only a modicum of new hearings will be
needed either in the Senate or in the House for final resolution of the
final wording that will go into the bankruptcy reform bill to which we
refer. We had some 13 hearings within a year to determine what was out
there in the business
world and in the consumer world that was important enough for us to note
and to provide language to accommodate.
Mr. Speaker, I am asking for cosponsorship.
- [Begin Insert]
I am proud to introduce H.R. 333, the Bankruptcy
Abuse Prevention and Consumer Protection Act of 2001, today together
with original cosponsors from both sides of the aisle.
This bill is identical to the conference report
that accompanied H.R. 2415, the Gekas-Grassley Bankruptcy Reform Act of
2000, which passed the House by voice vote last October and passed the
Senate with a veto-proof vote of 70 to 28 less than 2 months ago. The
only revisions consist of a title change and the deletion of a provision
that has already become law.
This bill is a further perfection of its
predecessor, H.R. 833, the Bankruptcy Reform Act of 1999, which I
introduced on February 24, 1999. With more than 100 cosponsors, H.R. 833
had overwhelming bipartisan support in the House as further evidenced by
a vote on final passage of 313 to 108.
The bill I am introducing today consists of a
comprehensive package of reforms pertaining to consumer and business
bankruptcy law. It also includes provisions regarding the treatment of
tax claims, enhanced data collection, and international insolvencies.
This bill responds to several developments
affecting bankruptcy law and practice. Based on data released by the
Administrative Office of the United States Courts, bankruptcy filings
have increased exponentially. Between 1994 and 1998, the number of filed
bankruptcy cases grew by more than 72 percent. In 1998, bankruptcy
filings, according to the Administrative Office, reached an ``all-time
high'' of more than 1.4 million cases. Paradoxically, however, this
dramatic increase in bankruptcy filing
rates occurred during a period when the economy continued to be robust,
with relatively low unemployment and high consumer confidence.
Coupled with this development was the release of a
study that estimated financial losses in 1997 resulting from these
bankruptcy filings exceeded $44 billion, a loss equal to more than $400
per household. This study projected that even if the growth rate in
personal bankruptcies slowed to only 15 percent over the next 3 years,
the American economy would have to absorb a cumulative cost of more than
$220 billion.
The Judiciary Committee began its consideration of
comprehensive bankruptcy reform early in the 105th Congress. On April
16, 1997, the Subcommittee on Commercial and Administrative Law
conducted a hearing on the operation of the bankruptcy system that was
combined with a status report from the National Bankruptcy Review
Commission. This was the first of 13 hearings that the subcommittee held
on the subject of bankruptcy reform over the ensuring 2 years. Eight of
these hearings were devoted solely
to consideration of H.R. 833 and its predecessor, H.R. 3150, the
Bankruptcy Reform Act of 1998. Over the course of these hearings, more
than 120 witnesses, representing nearly every major constituency in the
bankruptcy community, testified. With regard to H.R. 833 alone,
testimony was received from 69 witnesses, representing 23 organizations,
with additional material submitted by other individuals and groups.
The heart of the bill's consumer bankruptcy reforms
is the implementation of a mechanism to ensure that consumer debtors
repay their creditors the maximum that they can afford. The needs-based
formula articulates objective criteria so that debtors and their counsel
can self-evaluate their eligibility for relief under chapter 7 (a form
of bankruptcy relief where the debtor generally receives a discharge of
his
or her personal liability for most unsecured
debts). These reforms are not intended to affect consumer debtors
lacking the ability to repay their debts and deserving of an expeditious
fresh start.
The bill's debtor protections include significant
new credit card disclosure specifications and the requirement that
billing statements and other related materials contain explanatory
statements with regard to introductory interest rates and minimum
payments. These additional disclosures will give debtors important
information to enable them to better manage their financial affairs so
that they can avoid fiscal disaster.
Important reforms intended to help debtors
understand their rights and obligations with respect to reaffirmation
agreements are also included in the legislation. To enforce these
protections, the bill requires the Attorney General to designate a U.S.
attorney for each judicial district and a FBI agent for each field
office to have primary responsibility regarding abusive reaffirmation
practices, among other responsibilities.
In addition, the legislation substantially expands
a debtor's ability to exempt certain tax-qualified retirement accounts
and pensions. It also creates a new provision that allows a consumer
debtor to exempt certain education IRA and state tuition plans for his
or her child's postsecondary education from the claims of creditors.
Most importantly, the legislation's credit
counseling provisions will give consumers in financial distress an
opportunity to learn about the consequences of bankruptcy--which can be
very devastating to their credit rating, among other matters--and about
alternatives to bankruptcy, as well as how to manage their finances, so
that they can avoid future financial difficulties.
Other debtor protections include heightened
requirements for those professionals and others who assist consumer
debtors in connection with their bankruptcy cases, expanded notice
requirements for consumers with regard to alternatives to bankruptcy
relief, and the institution of a pilot program to study the
effectiveness of consumer financial education for debtors. The
legislation also addresses a problem under the current law with respect
to those individuals who are precluded from obtaining
bankruptcy relief because they simply cannot afford to pay the requisite
bankruptcy filing fees and related charges. Under the legislation, these
fees and charges may be waived in appropriate cases.
With regard to business bankruptcy reform, the bill
addresses the special problems that small business cases present by
instituting a variety of performance criteria and enforcement mechanisms
to identify and weed out those debtors who are unable to reorganize. It
also requires more active supervision of these cases by United States
Trustees and the bankruptcy courts. The bill includes provisions dealing
with business bankruptcy cases, in general, and family farmer
bankruptcies, in particular.
It also clarifies the treatment of certain financial contracts under the
banking laws as well as under the Bankruptcy Code. The bill responds to
the special needs of family farmers by making chapter 12 of the
Bankruptcy Code--a form of bankruptcy relief available only to eligible
family farmers--permanent.
The small business and single asset real estate
provisions of the bill are largely derived from consensus
recommendations of the National Bankruptcy Review Commission. Many of
these recommendations received broad support from those in the
bankruptcy community, including various bankruptcy judges, creditor
groups, and the Executive Office for United States Trustees.
The bill, in addition, contains several provisions
having general
impact with respect to bankruptcy law and practice.
These include a provision permitting certain appeals from final
bankruptcy court decisions to be heard directly by the court of appeals
for the appropriate circuit. Another general provision of the bill
requires the Executive Office for United States Trustees to compile
various statistics regarding chapter 7, 11, and 13 cases, to make these
data available to the public, and to report annually to Congress on the
data collected.
It is also important to note that the legislation
includes a plethora of provisions intended to protect the interests of
women and children. For example, the legislation--
Gives domestic support obligations the highest
entitlement to payment in bankruptcy cases where there are assets
available to pay the claims of creditors. Current law only accords a
seventh level payment priority to these claims.
Establishes a uniform and expanded definition of
the term ``domestic support obligation'' to better protext the rights of
women and children with support claims and to reduce litigation.
Prevents deadbeat parents from enjoying the
benefits of bankruptcy relief without having first satisfied their
spousal and child support obligations.
Ensures that bankruptcy cannot be used by deadbeat
parents to interfere with the enforcement efforts of federal, state and
local authorities with respect to overdue child support obligations.
Ensures that bankruptcy cannot be used by deadbeat
parents to interfere with the enforcement efforts of federal, state and
local authorities with respect to overdue child support obligations.
[Page: H135] GPO's PDF
Does not allow deadbeat parents to discharge other
obligations relating to divorce or separation agreements.
Requries those who are responsible for the
administration of bankruptcy cases to provide important information and
notices to their holders of spousal or child support claims as well as
to state child support agencies.
Many professionals and organizations responsible
for federal child support enforcement programs such as the National
District Attorneys Association, the National Association of Attorneys
General, and the National Child Support Enforcement Association (which
represents more than 60,000 child support professionals across America)
have enthusiastically expressed their support for these important
reforms.
I urge my colleagues to support H.R. 333, the
Bankruptcy Abuse Prevention and Consumer Protection Act of 2001.
- [End Insert]
THIS SEARCH THIS DOCUMENT THIS CR ISSUE GO TO Next Hit Forward Next Document New CR Search Prev Hit Back Prev Document HomePage Hit List Best Sections Daily Digest Help Doc Contents
January 3, 2001
Description:
To amend title XVIII of the Social Security Act to establish additional provisions to combat waste, fraud, and abuse within the Medicare Program, and for other purposes.
January 3, 2001
Description:
To permanently reenact chapter 12 of title 11 of the United States Code, relating to family farmers.
January 3, 2001
Description:
To revise the banking and bankruptcy insolvency laws with respect to the termination and netting of financial contracts, and for other purposes.
Senate - Introduced Bills
October 8, 2002
Description:
To provide bankruptcy judgeships.
September 24, 2002
Description:
S. 2996 Would Limit Homestead Exemption
S. 2996 WOULD LIMIT HOMESTEAD EXEMPTION
On September 24th, Senator Kohl (D-WI) introduced
S. 2996, a stand-alone bill that would cap homestead-related exemptions in
bankruptcy at $125,000 in the aggregate.
The bill titled the “Bankruptcy Abuse Reform Act of
2002” would amend section 522 to pre-empt higher state law exemptions in
cases where the debtor elected the state law exemption scheme or was required
to use the state law scheme because the relevant state had opted out of the
section 522(d) federal exemption list.
The $125,000 cap would apply to the aggregate of all exemptions claimed
in the case for real or personal property used as a residence by the debtor or
his/her dependants, interests in a cooperative that owns property used as a
residence by the debtor or his/her dependants (a cooperative apartment), or a
burial plot for the debtor or his/her dependants. Like the pending Bankruptcy Abuse Prevention and Consumer
Protection Act of 2002, the cap would not apply to an exemption claimed by a
family farmer for his/her principal residence. However, unlike the larger reform bill, this cap would be
absolute and would not provide exceptions for debtors who had lived in the
homestead for a lengthy period of time.
Prof. G. Ray Warner, ABI Resident Scholar, Professor of Law at the University of Missouri-Kansas City
September 24, 2002
Description:
To amend title 11, United States Code, to limit the value of certain real and personal property that a debtor may elect to exempt under State or local law, and for other purposes.
September 19, 2002
Description:
Scaled Back Employee Abuse Prevention Bill Would Elevate Employee Claims
Scaled Back Employee Abuse Prevention Bill Would Elevate Employee Claims
By: Prof. G. Ray Warner
Robert M. Zinman American Bankruptcy Institute Scholar in Residence
On September 19, 2002, Senator Dick Durbin (D-IL) introduced a substitute
amendment to the Employee Abuse Prevention Act of 2002 (S. 2798). The substitute deletes the most
controversial provisions of the prior bill, while retaining most of the
provisions designed to protect employees and retirees when businesses file
bankruptcy. The substitute amendment does not include a venue provision that
would have limited Delaware and New York filings, provisions that would have
enhanced the trustee’s power to challenge security interests and asset
securitization transactions, a provision that would have given claims for ERISA
fiduciary breaches a super-priority, lien-priming status, and a provision that
would have limited the section 546(e) safe harbor for securities settlement
payments to financial intermediaries.
Like the original bill, the changes made by the substitute amendment
would be effective immediately upon enactment and would apply to cases pending
on that date.
Retiree Health Benefits
Several provisions of the bill address employee and retiree issues. First,
current section 1114 prevents a Chapter 11 debtor from unilaterally modifying
certain retiree benefits, such as retiree health insurance, during the case
unless an authorized retiree representative is appointed and agrees to the
modification, or the court authorizes the modification as necessary to the
reorganization. The bill would amend section 1114 to prevent debtors from
evading its requirements by terminating retiree benefit plans on the eve of
bankruptcy. The bill would require retroactive reinstatement of retiree
benefits that were modified "in contemplation of bankruptcy" within
180 days before filing unless the pre-petition modification was essential to
the continuation of the debtor’s business. Modifications made within the
180-day period would be subject to a rebuttable presumption that they were made
in contemplation of bankruptcy.
Employee Wage, Severance and Pension Priority
Several provisions are designed to enhance the employees’ recovery on
pension and wage claims. The bill would increase the current section 507(a)(3)
priority for unpaid wage claims from $4,650 to $13,500, and would extend the
time period during which wages could qualify for priority from 90 day to 180
days.
More importantly, unlike the original bill, the substitute would deem
severance payments to be earned in full on the day of layoff or
termination. Thus, for employees
terminated within 180 days before bankruptcy, the entire severance obligation
would be subject to the section 507(a)(3) priority, rather than merely that
portion deemed to have been earned during the final 180 days. The bill makes a corresponding change
to section 503(b) that would give administrative expense priority treatment to
the first $13,500 of severance obligations owed to employees who are terminated
post-petition. Contra In re Hechinger Investment Co., 298 F.3d 219 (3d Cir.
2002) (“stay-on” benefits apportioned between pre-petition and
post-petition periods). The full
amount of severance owed would be given administrative expense status if the
debtor had assumed the collective bargaining agreement or other contract that
included the severance obligation.
Of greater significance, in certain instances the bill would convert
employee equity security interests held in pension plans from
"interests" to "claims." The bill would amend the section
101(5) definition of "claim" to include equity securities held in an
ERISA pension plan if the employee was forced to invest the pension assets in
equity securities of the debtor or an affiliate of the debtor. The
"claims" thus created would be entitled to priority under the section
507(a)(4) "employee benefit plan contribution" provision. The amount
of the section 507(a)(4) priority claim would be set at the market value of the
stock at the time it was contributed to, or purchased by, the pension plan.
Note that the section 507(a)(4) benefit plan priority is limited to the unused
portion of the 507(a)(3) priority times the number of employees. This would
remain the case for benefit plan contributions. No dollar limit would apply,
however, to the new pension plan stock claim. The effect of these changes would
be to elevate covered employee pension plan stock interests from the lowest
priority common stock level to a fourth level priority ahead of general
unsecured claims. In a case like Enron, where the contributed stock had a high
value at the time of the contribution, this provision could divert all of the
residual value of the estate from the unsecured creditors to the employees.
Enhanced Avoidance of Fraudulent Transfers and Excessive Compensation
The bill would also enhance the recovery of voidable transfers and impose
limits on executive compensation. Two changes would make it easier for the
estate to avoid pre-petition transfers. First, the one-year look-back period
for fraudulent transfers under section 548 would be extended to four years.
Thus, both actual fraudulent transfers and constructive fraudulent transfers
(transfers for less than reasonably equivalent value when the debtor is
insolvent) could be avoided by the estate if they occurred within four years
before bankruptcy. This change would have relatively little impact in most
cases since most such transfers already could be avoided under section 544(b)
using very similar state fraudulent transfer laws. The provision would enhance
the estate’s recovery in those cases where the state law statute of
limitations was less than four years or where the state law was less expansive
than section 548.
The bill would also expand section 548 to allow the recovery of excessive
benefit transfers and obligations made to insiders (including officers and
directors) during the four years prior to bankruptcy if the debtor was
insolvent or was rendered insolvent by the transaction. This provision would
apply even though the transaction was not otherwise fraudulent. A two-part test
would be used to determine whether the benefit was excessive, and thus
avoidable. If similar benefits were provided to non-management employees during
the same calendar year, then the benefit would be excessive if it was equal to
or greater than 10 times the average similar benefits provided to
non-management employees during the same calendar year. If no such benefits
were provided to non-management employees, then the benefit would be excessive
if it was equal to or greater than 125% of the amount of any similar benefit
provided in the calendar year prior to the year of the benefit transaction. The
bill appears to avoid the entire transaction, and not merely the portion deemed
excessive. This appears to be intended as a disincentive to engage in such
transactions. The bill does not indicate whether the section 548(c) "good
faith transferee for value" defense could be used to limit avoidance in
appropriate cases. Although the provision appears to be designed to apply to
management compensation, nothing in the language of the provision expressly
limits it to compensation. Arguably it could be used to avoid non-fraudulent
transfers between corporate affiliates if they met or exceeded the 125%
threshold.
Limitations on Retention and Severance Programs
The bill also would impose new standards for the approval of retention and
severance programs for officers and directors. Retention payments to insiders
(including officers and directors) would not be allowed unless the court finds
"based on evidence in the record" that the retention benefit is
“essential” to the retention of such person and “essential to
the survival of the business.”
The substitute does not include the original bill’s requirement
that the person have a competing job offer. Further, the amount of the retention benefit could not be
greater than 10 times the average similar benefit provided to non-management
employees during the same calendar year or, if no similar benefits were
provided to non-management employees, the retention benefit could not exceed
125% of any similar benefit provided to the same insider during the prior
calendar year. It is not clear which benefits would be considered in computing
these caps since the bill refers to "similar" transactions "for
any purpose". While use of the term "similar" suggests that the
comparison is to other retention benefits, the "any purpose" language
suggests that the cap is computed on the basis of total compensation. The bill
would not limit retention programs for non-management employees.
The bill would also limit severance benefits for insiders (including
officers and directors). The severance payment would have to be part of a
program that is generally applicable to all full-time employees and could not
be greater than 10 times the average severance given to non-management
employees during the same calendar year.
Post-Petition Employment of Officers or Consultants
Finally, the bill contains broad language barring post-petition transfers
and obligations that are outside the ordinary course of business, unless they
are justified by the facts and circumstances of the case. Transfers to, and obligations incurred
for the benefit of, officers, managers, or consultants hired post-petition would
be deemed to be outside the ordinary course of business. The effect of this
provision would be to subject the compensation arrangements for management
personnel and consultants hired post-petition to greater scrutiny by the
court. While such compensation
arrangements are the obvious focus of the provision, the new “justified
by the facts and circumstances” standard would apply to all non-ordinary
course post-petition transfers and obligations. It is not clear whether this language would impose
significant new limitations on the debtor’s ability to use business
judgment in entering into non-ordinary course transactions.
September 3, 2002
Description:
To provide that bonuses and other extraordinary or excessive compensation of corporate insiders and wrongdoers may be included in the bankruptcy estate.
September 2, 2002
Description:
S. 2901 Would Recover Excessive Payments To Insiders
S. 2901 Would Recover Excessive Payments To Insiders
A
bill introduced by Senator Grassley (R-Iowa) on September 3, 2002, would permit
the recovery of excessive compensation paid to insiders, officers, or directors
of the debtor during the year prior to bankruptcy. In addition, in cases involving securities law violations or
accounting irregularities, the look-back period would be expanded to allow
avoidance of both compensation transfers and of obligations incurred for
compensation within four (4) years prior to bankruptcy. The bill has been referred to the Committee
on the Judiciary.
S.
2901 is drafted to amend both the section 547 preference provision and the
section 548 fraudulent transfer provision. The amendment to section 547 creates a one-year look-back
period and allows recovery of transfers made within the year prior to
bankruptcy to insiders, officers, or directors of the debtor if those transfers
were for "any bonuses, loans, nonqualified deferred compensation, or other
extraordinary or excessive compensation." Although this provision would be added to the preference
section, it would not technically be a preference since the section would
permit recovery of compensation even if the debtor was solvent and even if
there was no pre-existing debt owed to the insider.
It is not clear whether the phrase
"other extraordinary or excessive compensation" is meant to modify
the listed terms. For example,
would all bonus and loan transfers be avoidable, or only those which are either
unusual or excessive? Further,
with respect to a "transfer … made …for any …
loan," is unclear whether the section is limited to loans that are
"compensation." If not,
this language would permit recovery of all loan payments made to insiders (a
term that includes affiliated corporate entities) within the year prior to
bankruptcy, even if the loan transaction was legitimate and not related to
compensation. The provision is not
limited to publicly traded companies and would apply in all cases.
Finally, since the provision establishes
"excessive" and "extraordinary" as alternative grounds for
avoidance, it might result in the avoidance of completely proper bonus
arrangements merely because the debtor's financial condition required it to
resort to unusual compensation schemes as its condition worsened. For example, if a turnaround
professional were employed as an officer on terms that were unusual for the
debtor company, the compensation arrangement might be at risk even if the terms
were not excessive.
The
bill would also add a new sub-section to the section 548 fraudulent transfer
provision establishing a four-year look-back period for the recovery of
compensation in certain cases. The
compensation recovery provision applies only to officers, directors, or
employees of an “issuer of securities” who have engaged in
securities law violations or improper accounting practices. The provision applies both to transfers
made and obligations incurred and thus would allow the debtor to negate a
compensation agreement made within four years before bankruptcy as well as the
payments made pursuant to such an agreement. Note that unlike true fraudulent transfers, this provision
would permit avoidance even though the debtor was not insolvent or in financial
difficulty at the time the transfer was made or the obligation incurred.
The provision targets the same
types of transfers as the amendment to the preference provision and raises
similar interpretive difficulties.
The targeted class of persons is both broader and narrower than the related
preference provision. While the
inclusion of “employees” expands the section’s scope, it does
not apply to insiders who are not officers or directors of the debtor, and thus
would not apply to a controlling shareholder or an affiliated company. Further, unlike the preference
amendment, this provision only applies to issuers of securities that are
registered under section 12 of the Securities and Exchange Act of 1934, or that
are required to file reports under section 15(d) of the Act.
The
subject transfers and obligations are avoidable if the officer, director, or
employee committed: (i) a violation of state or federal securities law or any
regulation or order issued there under; (ii) fraud, deceit, or manipulation in
a fiduciary capacity or in connection with the purchase or sale of any security
registered under section 12 or 15(d) of the Securities and Exchange Act of 1934
or under section 6 of the Securities Act of 1933; or (iii) illegal or deceptive
accounting practices. This section
potentially has a very broad sweep.
The securities violation provision could be read to apply to technical
violations or violations resulting from negligence that might not involve
intentional improper conduct. The
accounting practices prong could also be interpreted broadly since the term
“deceptive” apparently covers practices that are not illegal. In addition, the provision does not
appear to require that the defendant’s improper action relate to the compensation
that would be avoided – either by causation, or by time. Presumably, a securities
violation committed shortly before bankruptcy could be the basis for the
recovery of bonuses paid years earlier.
Prof. G. Ray Warner, ABI Resident Scholar, Professor of Law
at the University of Missouri-Kansas City.
August 1, 2002
Description:
Employee Abuse Prevent Bill Would Change Venue Rules And Elevate Employee Claim
Employee Abuse Prevent Bill Would Change Venue Rules And Elevate Employee Claims
By: Prof. G. Ray Warner
Robert M. Zinman American Bankruptcy Institute Scholar in Residence
On August 1, 2002, Senator Dick Durbin (D-IL) and Rep. William Delahunt (D-MA) introduced a package of amendments to the Bankruptcy Code that are designed to protect employees and retirees when businesses file bankruptcy. The proposed Employee Abuse Prevention Act of 2002 (S. 2798 & H.R. 5221) expands the estate’s power to challenge pre-bankruptcy transactions and provides greater protection to the claims of employees and retirees. In addition, the bill would eliminate Delaware as a proper venue for most corporate cases by removing the state of incorporation as a venue option. Finally, the bill would reverse some of the bankruptcy-related changes made by the recent revision of Article 9 of the Uniform Commercial Code by enhancing the estate’s ability to attack asset securitization transactions and to avoid security interests. All but one of the changes made by the bill would be effective immediately upon enactment and would apply to cases pending on that date.
Venue At Corporation’s Center of Gravity
On the venue front, the bill would amend 28 U.S.C. 1408 to provide that the domicile and residence of a corporation are conclusively presumed to be the debtor’s principal place of business in the United States. This change would eliminate the debtor’s state of incorporation as a venue option and would have a major impact on the Delaware bankruptcy practice. Under the change, venue would be appropriate in the districts where the debtor’s principal place of business or principal assets in the United States were located.
In addition, the bill would change the "affiliate venue" rules that currently permit the filing of a case in any district where a case involving an affiliate of the debtor is pending. Instead, the new affiliate rule would limit the debtor to filing in a jurisdiction where its parent (an entity that owns, controls, or has the power to vote 20 percent or more of the debtor’s outstanding voting securities) has a pending case. If the parent corporation is not in bankruptcy, then the subsidiary could file in the district where the debtor’s affiliate that has the greatest assets in the United States has its principal place of business, whether or not that affiliate has filed bankruptcy. This provision could not be used by the parent to expand its venue options. Under the proposed revision, an entire corporate group could file only in the districts where the parent could file. A sub-group that included only subsidiaries could file only where the affiliate with the greatest U.S. assets has its principal office. The changes in the affiliate rules would affect New York, since cases like Enron could not be filed there. However, since many major corporations have their headquarters in New York, the net effect of shifting those filings from Delaware to New York might offset the loss of cases resulting from the affiliate rule changes.
Finally, the venue rules would be amended to require that cases filed in an improper venue either be dismissed or transferred to a district in which venue properly lies if a timely objection to venue is made. Although the venue provisions would apply to cases pending on the enactment date, the "timely objection" requirement might prevent the transfer of cases already pending in districts where venue would be improper under the amendment.
Pension and Retiree Protections
Several provisions of the bill address employee and retiree issues. First, current section 1114 prevents a Chapter 11 debtor from unilaterally modifying certain retiree benefits, such as retiree health insurance, during the case unless an authorized retiree representative is appointed and agrees to the modification, or the court authorizes the modification as necessary to the reorganization. The bill would amend section 1114 to prevent debtors from evading its requirements by terminating retiree benefit plans on the eve of bankruptcy. The bill would require retroactive reinstatement of retiree benefits that were modified "in contemplation of bankruptcy" within 180 days before filing unless the pre-petition modification was essential to the continuation of the debtor’s business. Modifications made within the 180-day period would be subject to a rebuttable presumption that they were made in contemplation of bankruptcy.
Several provisions are designed to enhance the recovery on pension and wage claims. The bill would increase the current section 507(a)(3) priority for unpaid wage claims from $4,650 to $13,500. More importantly, in certain instances the bill would convert employee equity security interests held in pension plans from "interests" to "claims." The bill would amend the section 101(5) definition of "claim" to include equity securities held in an ERISA pension plan if the employee was forced to invest the pension assets in equity securities of the debtor or an affiliate of the debtor. The "claims" thus created would be entitled to priority under the section 507(a)(4) "employee benefit plan contribution" provision. The amount of the section 507(a)(4) priority claim would be set at the market value of the stock at the time it was contributed to, or purchased by, the pension plan. Note that the section 507(a)(4) benefit plan priority is limited to the unused portion of the 507(a)(3) priority times the number of employees. This would remain the case for benefit plan contributions. No dollar limit would apply, however, to the new pension plan stock claim. The effect of these changes would be to elevate covered employee pension plan stock interests from the lowest priority common stock level to a fourth level priority ahead of general unsecured claims. In a case like Enron, where the contributed stock had a high value at the time of the contribution, this provision could divert all of the residual value of the estate from the unsecured creditors to the employees.
Certain pension claims would be elevated even higher. An almost incomprehensible provision appears to prime both secured lenders and administrative expenses (including professional fees) where a claim is based on the breach of an ERISA or state law fiduciary duty respecting a pension plan. The bill initially would amend section 503(b) to grant such breach of fiduciary duty claims an administrative expense priority. This would place such claims on parity with other administrative expenses, but ahead of other types of priority claims and general unsecured claims. However, the bill would then amend section 507(b) to provide that these claims would have priority over every other administrative expense claim. Finally, the bill would amend section 506 to provide that any pension plan, any plan participant, or any plan beneficiary could recover any unpaid amount of such claim from property securing allowed secured claims. This provision is designed to encourage secured creditors to monitor the debtor and ensure that it complies with its fiduciary obligations under its pension plans. The net effect of these provisions would be to give such claims a superpriority on any unencumbered assets and, if that was not sufficient to satisfy them in full, a surcharge against secured claims. As a practical matter, these changes might increase the costs and reduce the availability of credit and might deprive the estate of the funds necessary to administer cases with large pension plan fiduciary breach claims. The provision priming secured claims is the only provision of the bill that would not become effective immediately or apply to pending cases. It would apply only to liens created after the bill becomes law.
Avoidance of Security Interests and Asset Securitization Transactions
Although only tangentially related to pension security and employee protection, several provisions of the bill would make it easier for the estate to avoid pre-petition security interests and asset securitization transactions. These proposed changes would have a significant impact in all cases and would only incidentally aid employees by enlarging the estate and providing a greater dividend to unsecured creditors.
Asset securitization is a financing method that attempts to insulate the financing transaction from a bankruptcy of the debtor. This is done by creating a new bankruptcy remote special purpose entity ("SPE") and transferring income-producing assets of the debtor to the SPE in a "true sale" transaction. The financing transaction then occurs at the SPE’s level. By the time the debtor files bankruptcy, the assets belong to the SPE and are not property of the estate. Thus, the lender is not subject to the automatic stay, use of cash collateral, or any other bankruptcy-based alteration of its rights. While bankruptcy courts currently can review the transaction to determine whether the formalities of a true sale were complied with, the amendment would expand the court’s power to recharacterize such sales as secured loans. The bill would expressly override non-bankruptcy law, such as laws in some states that purport to make the parties’ characterization of the transaction as a "true sale" binding on the courts. See, e.g., Del. Code Ann. Tit. 6, § 2701A, et seq. In addition, the bill appears to create a new federal standard that allows the court to recharacterize a transaction if the "material characteristics" of the transaction are "substantially similar" to the characteristics of a secured loan. The section-by-section analysis accompanying the bill indicates that the provision is designed to allow the court to "look through the formalities of a ‘sale’.…"
In addition, the bill would undo much of the additional protection from bankruptcy attack that secured creditors obtained from last year’s revision of Article 9 of the Uniform Commercial Code. Under current law, the trustee’s "strong arm" power under section 544 of the Code gives the trustee the powers of a "lien creditor" with respect to personal property assets. The recent revision of Article 9 significantly reduced the trustee’s avoiding powers by reducing the powers of lien creditors under state law. See C. Scott Pryor, How Revised Article 9 Will Turn the Trustee’s Strong-Arm Into a Weak Finger, 9 Am. Bankr. Inst. L. Rev. 229 (2001); see also G. Ray Warner, The Anti-Bankruptcy Act: Revised Article 9 and Bankruptcy, 9 Am. Bankr. Inst. L. Rev. 3 (2001). The bill purports to restore the trustee’s power by upgrading the trustee’s status to that of a hypothetical "good faith reliance purchaser for value." The new status would allow the trustee to avoid an Article 9 security interest based on any error in the financing statement. Current law only allows avoidance based on a name error or an error in the collateral designation. In addition, the trustee could avoid security interests in instruments and investment property if the secured creditor had relied on the filing of a financing statement as its method of perfection. The wording of the section may go even further. In addition to treating the trustee as a good faith purchaser for value, it also treats the trustee as though he/she had taken possession of the property. In the case of negotiable instruments, this change may give the trustee priority over even a holder in due course of the instrument, a result presumably not intended by the drafters. The good faith purchaser status could create other inconsistencies and possibly unintended consequences.
Enhanced Avoidance of Fraudulent Transfers and Excessive Compensation
The bill would also enhance the recovery of voidable transfers and impose limits on executive compensation. Two changes would make it easier for the estate to avoid pre-petition transfers. First, the one-year look-back period for fraudulent transfers under section 548 would be extended to four years. Thus, both actual fraudulent transfers and constructive fraudulent transfers (transfers for less than reasonably equivalent value when the debtor is insolvent) could be avoided by the estate if they occurred within four years before bankruptcy. This change would have relatively little impact in most cases since most such transfers already could be avoided using very similar state fraudulent transfer laws. The provision would enhance the estate’s recovery in those cases where the state law statute of limitations was less than four years or where the state law was less expansive than section 548. A more important provision would amend the section 546(e) safe harbor for securities settlement payments to limit the safe harbor protection to brokers, clearing agents, and other financial intermediaries. The safe harbor would no longer protect the actual shareholders who are the beneficiaries of an avoidable transfer involving securities. Compare Lowenschuss v. Resorts Int’l, Inc. (In re Resorts Int’l, Inc.), 181 F.3d 505 (3d Cir. 1999) (safe harbor protects shareholders), with Munford v. Valuation Research Corp. (In re Munford), 98 F.3d 604 (11th Cir. 1996) (shareholders not protected).
The bill would also expand section 548 to allow the recovery of excessive benefit transfers and obligations made to insiders (including officers and directors), general partners, and affiliated persons during the four years prior to bankruptcy if the debtor was insolvent or was rendered insolvent by the transaction. This provision would apply even though the transaction was not otherwise fraudulent. A two-part test would be used to determine whether the benefit was excessive, and thus avoidable. If similar benefits were provided to nonmanagement employees during the same calendar year, then the benefit would be excessive if it was equal to or greater than 10 times the average similar benefits provided to nonmanagement employees during the same calendar year. If no such benefits were provided to nonmanagement employees, then the benefit would be excessive if it was equal to or greater than 125% of the amount of any similar benefit provided in the calendar year prior to the year of the benefit transaction. The bill appears to avoid the entire transaction, and not merely the portion deemed excessive. This appears to be intended as a disincentive to engage in such transactions. The bill does not indicate whether the section 548(c) "good faith transferee for value" defense could be used to limit avoidance in appropriate cases. Although the provision appears to be designed to apply to management compensation, nothing in the language of the provision limits it to compensation. Arguably it could be used to avoid non-fraudulent transfers between corporate affiliates if they met or exceeded the 125% threshold.
The bill also would substantially limit the bankruptcy court’s authority to approve retention and severance programs for officers and directors. Retention payments to insiders (including officers and directors) would not be allowed unless the court finds "based on evidence in the record" that the retention benefit is essential because the individual has a bona fide job offer at the same or greater rate of compensation and that the services of the individual are essential to the survival of the business. Further, even after those elements were shown, the retention benefit could not be greater than 10 times the average similar benefit provided to nonmanagement employees during the same calendar year or, if no similar benefits were provided to nonmanagement employees, the retention benefit could not exceed 125% of any similar benefit provided to the same insider during the prior calendar year. It is not clear which benefits would be considered in computing these caps since the bill refers to "similar" transactions "for any purpose". While use of the term "similar" suggests that the comparison is to other retention benefits, the "any purpose" language suggests that the cap is computed on the basis of total compensation. The bill would not limit retention programs for nonmanagement employees. The bill would also limit severance benefits for insiders (including officers and directors). The severance payment would have to be part of a program that is generally applicable to all full-time employees and could not be greater than 10 times the average severance given to nonmanagement employees during the same calendar year.
Finally, the bill contains broad language barring post-petition transfers and obligations that are outside the ordinary course of business, unless they are justified by the facts and circumstances of the case. Compensation of officers, managers, or consultants hired post-petition would be deemed to be outside the ordinary course of business. The effect of this provision would be to subject the compensation arrangements for management personnel and consultants hired post-petition to greater scrutiny by the court.
July 30, 2002
Description:
To increase the priority dollar amount for unsecured claims, and for other purposes. (Introduced in Senate)
July 25, 2002
Description:
To protect employees and retirees from corporate practices that deprive them of their earnings and retirement savings when a business files for bankruptcy under title 11, United States Code.
November 22, 2001
Description:
To strengthen the safety net for agricultural producers, to enhance resource conservation and rural development, to provide for farm credit, agricultural research, nutrition, and related programs, to ensure consumers abundant food and fiber, and for other purposes.
June 28, 2001
Description:
To amend title 49, United States Code, to preserve nonstop air service to and from Ronald Reagan Washington National Airport for certain communities in case of airline bankruptcy. (Introduced in Senate)
March 1, 2001
Description:
To amend title 11, United States Code, and for other purposes.
March 1, 2001
Description:
To amend title 11, United States Code, and for other purposes.
February 7, 2001
Description:
To amend title 28, United States Code, to divide New Jersey into 2 judicial districts. (Introduced in Senate)
January 31, 2001
Description:
To amend title 11, United States Code, and for other purposes.
January 25, 2001
Description:
S. 178—To permanently reenact chapter 12 of title 11, United States Code, relating to family farmers.