Chapter 11 Liquidation and its Effect on Collective Bargaining Agreements

By: Dylan Coyne  

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

        In In re Alpha Natural Resources, Inc., a Virginia bankruptcy court allowed a coal mining company to reject its collective bargaining agreements thereby permitting the company to sell its revenue generating assets.[1]  Alpha Natural Resources, Inc. (“Alpha”) is the largest coal producing company by volume in the United States and began to sustain severe financial difficulties after the coal industry began to decline in 2011.[2]  In an effort to stay afloat, Alpha began to cut costs by freezing wages, laying off employees and reducing benefits for non-union employees in 2013.[3]  In its Chapter 11 case, Alpha explored selling its core revenue generating assets to its prepetition lenders (the “Bidders”), who served as a stalking horse for the sale.[4]  The Bidders, however, were not willing to assume Alpha’s liabilities to Alpha’s unions as required under the collective bargaining agreement or under the Coal Industry Retiree Health Benefit Act of 1992 (the “Coal Act”). [5]  Accordingly, Alpha filed a motion for an order rejecting the collective bargaining agreements.[6]  Alpha’s unions objected to the request, arguing that §§ 1113 and 1114 of the Bankruptcy Code do not apply to Alpha since Alpha is liquidating and those sections address reorganization, and further that Alpha had not satisfied the elements of those same statutes.[7]

        As an initial matter, the Virginia court concluded that § 1113 permits a debtor to reject collective bargaining agreements subject to several necessary conditions being met.[8] While relatively few courts have decided whether § 1114’s definition of “retiree benefits” allows for the inclusion of Coal Act obligations,[9] this Virginia court agreed with the Kentucky and Alabama courts that § 1114 allows for the inclusion of Coal Act obligations.[10]  Because Virginia has now decided this seemingly new issue in agreement with two other courts[11], it is very likely that courts in other jurisdictions will continue to favor this interpretation of § 1114. 

        The final focus of In re Alpha is whether Alpha met the conditions necessary to obtain relief under §§ 1113 and 1114.  In finding that Alpha did meet all the conditions, the Court first determined whether Alpha’s requested relief is necessary to permit reorganization.[12]  It appears as though when a debtor has an unsustainable cash burn rate in combination with a reorganization that hinges upon whether a going-concern sale can be finalized, the requested relief is necessary.[13]  This reasoning segues into the analysis of the conditions that the union refused to accept the proposal without good cause and the balance of the equities favor rejection.  The common law principle that when a union rejects a debtor’s proposal with no evidence as to why there was good cause for rejection, it is automatically assumed there is no good cause, is upheld here.[14]  Finally, the Court found that Alpha’s desperate need to suppress its cash burn and the absolute necessity of completing the going-concern sale to sustain Alpha’s viability favored rejection, allowing for subsequent companies facing similar dire straits to seek relief under §§ 1113 and 1114.[15]  It appears that unions will have to suffer when an employer files for bankruptcy and the employer cannot effectively reorganize while maintaining its obligations under collective bargaining agreements.

[1] In re Alpha Nat. Res., Inc., 552 B.R. 314 (U.S. Bankr., E.D. Va., Richmond Division 2016).

[2] Id. at 319.

[3] Id.

[4] Id. at 322.  A stalking horse bidder is someone that offers a minimum bid so that the debtor may test the market for its assets in order to avoid low bids. Stalking Horse Bid,, (last visited Nov. 21, 2016).

[5] Id. at 322.

[6] In re Alpha Nat. Res., Inc., 552 B.R. 323 (U.S. Bankr., E.D. Va., Richmond Division 2016).

[7] Id.

[8] 11 U.S.C. § 1113 (2012).   In re Alpha Nat. Res., Inc., 552 B.R. at 330-331 (The nine conditions are: 1. The debtor in possession must make a proposal to the Union to modify the collective bargaining agreement; 2. The proposal must be based on the most complete and reliable information available at the time of the proposal; 3. The proposed modifications must be necessary to permit the reorganization of the debtor; 4. The proposed modifications must assure that all creditors, the debtor and all of the affected parties are treated fairly and equitably; 5. The debtor must provided to the Union such relevant information as is necessary to evaluate the proposal; 6. Between the time of the making of the proposal and the time of the hearing on approval of the rejection of the existing collective bargaining agreement, the debtor must meet at reasonable times with the Union; 7. At the meetings the debtor must confer in good faith in attempting to reach mutually satisfactory modifications of the collective bargaining agreement; 8. The Union must have refused to accept the proposal without good cause; and 9. The balance of the equities must clearly favor rejection of the collective bargaining agreement.).

[9] 11 U.S.C. § 1114 (2012); In re Alpha Nat. Res., Inc., 552 B.R. at 327.

[10] In re Alpha Nat. Res., Inc., 552 B.R. at 327; In re Horizon Nat. Res. Co., 316 B.R. 268 (U.S. Bankr., E.D. Ky., Ashland Division 2004) (reasoning that if the modification of retiree benefits under the Coal Act was necessary, the trustee made a proposal that satisfies § 1114(f) prior to the hearing, and the authorized representative of the retiree rejected the proposal without good cause, modification must be permitted); In re Walter Energy, Inc., 542 B.R. 859 (U.S. Bankr., N.D. Ala., Southern Division  2015).

[11] An Alabama court in In re Walter Energy, Inc. agreed with the reasoning of the Kentucky court and held that the maintenance of retiree benefits by a debtor is within the scope of § 1114.

[12] In re Alpha Nat. Res., Inc., 552 B.R. at 332.

[13] Id. at 333.

[14] Id. at 336; See In re Walter Energy, Inc., 542 B.R. at 895.

[15] Id. at 337.