ANALYSIS: PUERTO RICO PUBLIC CORPORATIONS DEBT ENFORCEMENT AND RECOVERY ACT DECLARED UNCONSTITUTIONAL
The U.S. District Court for the District of Puerto Rico issued an opinion and order on Feb. 6 declaring the Puerto Rico Public Corporations Debt Enforcement and Recovery Act (the "Recovery Act") unconstitutional, as it violates the Supremacy Clause of the U.S. Constitution, according to an analysis yesterday by Ferraiuoli LLC. The Recovery Act, adopted on June 28, 2014, enables a debt negotiation and restructuring process very similar to a petition under the provisions of chapter 9 of the Bankruptcy Code. Puerto Rico is included in the Bankruptcy Code's definition of a "state" for all purposes, except for filings under the provisions of chapter 9. The opinion and order by Judge Francisco Besosa held that the Recovery Act is preempted by federal law and thus violates the Supremacy Clause of the U.S. Constitution. The Court contended that "[t]he Commonwealth defendants, and their successors in office, are permanently enjoined from enforcing the Recovery Act." Puerto Rico has announced it will appeal the ruling to the U.S. Court of Appeals for the First Circuit. Click here to read the full analysis.
For further background on the Recovery Act, listen to an ABI podcast from last year with Ferraiuoli LLC's Sonia Colòn and Javier Vilariño Santiago discussing the controversial new law.
U.S. SERVICE MEMBERS TO RECEIVE $123 MILLION IN FORECLOSURE RELIEF
Members of the U.S. armed forces will receive $123.4 million as a first round of payments is made under a federal law to protect service members from foreclosures, in conjunction with the $25 billion nationwide mortgage settlement reached in February 2012, Reuters reported yesterday. The U.S. Department of Justice, which announced the payments yesterday, said 666 service members and their co-borrowers will receive $88 million from JPMorgan Chase & Co., Wells Fargo & Co., Citigroup Inc. and Ally Financial Inc. Another 286 service members and their co-borrowers previously received $35.4 million under a 2011 settlement with Bank of America Corp., the Justice Department said. Lenders had been accused of violating the Servicemembers Civil Relief Act, which prohibits non-judicial foreclosures against service members who are on or recently left active duty and took out their mortgages before their service began. The foreclosures at issue took place between Jan. 1, 2006 and April 4, 2012, the Justice Department said. Read more.
PENSION PLANS, ONCE INVIOLABLE PROMISES TO EMPLOYEES, ARE GETTING CUT
The stock market has soared more than 75 percent in the past five years, yet many pension funds, where many middle-class workers should benefit from the market's rise, continue to struggle, jeopardizing benefits for the workers who were counting on them in retirement, according to a Washington Post analysis today. At the end of last year, Congress passed legislation allowing certain distressed pension plans to slash retirement benefits, including those already being received by retirees — an unprecedented move that is altering a principle enshrined in federal law for four decades that says benefits already earned cannot be cut. None of the distressed plans have cut benefits, but experts point out that their ability to do so is one more example that promises made to employees that once seemed inviolable can now be broken. This change in the social contract is growing more common as employers, private employers and governments increasingly view the mushrooming cost of pensions as unbearable, even as the broader economy recovers. Cities such as Chicago and San Jose have already moved to cut benefits for new or current employees as pension costs crowded out other priorities. Detroit was able to lift itself out of bankruptcy partly by cutting pensions for retirees. The creeping reductions in retirement benefits are adding a new layer to the financial stress being felt by many middle-class Americans who have been grappling with flat wages for more than a decade. "With stagnant wages and increasing costs to American families, legislators should be doing everything possible to protect pensions that provide family stability," says Karen Friedman, executive vice president and policy director at the Pension Rights Center, which advocates for better retirement security policy. "Yet this is just the opposite of what policymakers and employers are doing." Read more.
Make sure to register for the next ABI Live Webinar on Feb. 26 titled "Pension Tension: Dealing with Plans in the Restructuring World." For more information and to register for the webinar, presented by ABI's Labor and Employment Committee, please click here.
CONTROVERSIAL INDUSTRY CHARGES LOW-INCOME AMERICANS TO FIX CREDIT ERRORS THAT THEY CAN FIX THEMSELVES FOR FREE
A fast-growing and controversial industry that charges to assist low-income consumers with relatively basic financial repair work is catching the eye of regulators, the Washington Post reported on Sunday. The Federal Trade Commission warns that the industry is vulnerable to rampant abuse, noting that among the thousands of credit repair companies, "many" make "highly questionable claims" about the results they can achieve. Other players are above-board and legal, trying to help Americans improve their financial standing — even if consumers could do by themselves most of what the companies charge hundreds of dollars to do on their behalf. The industry has capitalized on the aftermath of a financial crash that has left many lower working-class people struggling to pay bills despite the broader economic recovery. Lenders have tightened standards since the Great Recession, increasing the importance of one's credit score, a three-digit number that reflects a history of paying back bills on time over seven years. The problem? The past seven years have seen the highest level of late debt payments in generations. Industry insiders say that the number of credit repair firms now stands at between 5,000 to 7,000, at least double the number before the financial crisis. Many of the new companies are small, started by former mortgage brokers or auto dealers who are familiar with the power of credit scores and whose own industries had suffered major downturns. Read more.
RENTERS ARE MAJORITY IN BIG U.S. CITIES
American cities — and not just the priciest ones — are more and more the domain of renters, the Wall Street Journal reported yesterday. Renters made up the majority of the population in cities at the core of nine of the nation’s 11 largest metro areas in 2013, a sharp change from 2006, when renters were the majority in just five of those cities, according to a new report. Cities have always had a larger number of renters when compared with suburban areas, in part because the cost of owning a home within a city's limits is out of reach for many residents, especially in high-cost places such as New York, San Francisco and Washington, D.C. But the report, released yesterday by New York University's Furman Center and Capital One Financial Corp., found a significant shift in the proportion of renters in all major cities — even in lower-density, relatively inexpensive places such as Houston and Dallas. A resulting demand for apartments is rising so fast that it is starting to overwhelm supply in many cities, which is pushing up housing costs nationwide. "As the number of renters grow, if the supply of rental housing does not keep up — as it has not in most of these cities — then vacancy rates will fall, rents will rise, and more renters will struggle with the costs of housing," said Ingrid Gould Ellen, the Furman Center's faculty director. Read more. (Subscription required.)
LATEST ABI PODCAST EXAMINES CONTROVERSIAL NATIONAL CHAPTER 13 PLAN FORM PROPOSAL
ABI Resident Scholar Prof. Anne Lawton talks with Chief Bankruptcy Judges Rebecca Connelly (W.D. Va.) and Brian Lynch (W.D. Wash.) about the proposed national chapter 13 plan form being considered by the Committee on Rules of Practice and Procedure of the Judicial Conference of the U.S.
Judges Connelly and Lynch, who testified at a Jan. 23 public forum before the Committee on the proposed plan, also discuss points raised by sides supporting the national plan form, and those critical of the proposal. To listen to the podcast, please click here.
Comments on the proposal are being accepted until Feb. 17. To submit a comment on the proposal, please follow these instructions.
FRIDAY: ACB EVENT ON CAPITOL HILL TO FOCUS ON FINAL REPORT OF ABI'S CHAPTER 11 REFORM COMMISSION
The American College of Bankruptcy (ACB) Fourth Circuit will be holding a free program, “Considering ABI's Report on Chapter 11 Reform," on Capitol Hill on Feb. 13. The program will last from 9:30 a.m. to 1:00 p.m. and be located in Room 226 of the Rayburn House Office Building (House Judiciary Committee). Members are invited to attend the discussion by ABI commissioners and bankruptcy experts on the Final Report’s treatment of small and medium-sized enterprises (SMEs), 363 sales, valuation and more. For more information and to register, please click here.
ORDER YOUR PRINTED COPY OF THE FINAL REPORT OF ABI'S COMMISSION TO STUDY THE REFORM OF CHAPTER 11!
Order your printed copy of the Final Report of ABI's Commission to Study the Reform of Chapter 11! The 402-page Final Report contains more than 200 discrete recommendations of chapter 11 policy reforms. ABI's Commission to Study the Reform of Chapter 11 was established in 2012 with a mission to study and propose reforms to Chapter 11 of the Bankruptcy Code and related statutory provisions. After months of deliberations, the Commission unanimously adopted this report to provide to Congress. For the special price of $40, you will have all the testimony, studies and figures that went into compiling the recommendations at your fingertips! Click here to order.
NEW ABI LIVE WEBINAR TO EXAMINE "PENSION TENSION" IN RESTRUCTURING
Make sure to save the date for "Pension Tension: Dealing with Plans in the Restructuring World," the new ABI Live Webinar scheduled for Feb. 26 from noon - 1:15 p.m. EST! This webinar, presented by ABI’s Labor and Employment Committee, will address current employee- and labor-related issues in chapter 11 and out-of-court restructurings, including, among other things: (a) whether private equity sponsors may be subject to pension fund withdrawal liability under ERISA in light of the First Circuit’s Sun Capital decision; (b) whether pension plan withdrawal liability is entitled to administrative claim status; and (c) the status of the Pension Benefit Guaranty Corp.’s moratorium on 4062(e) enforcement. Attorneys and other restructuring professionals dealing with the PBGC will learn about current developments in this dynamic and changing area of law that plays an important role in many reorganizations today.
- David R. Seligman (Kirkland & Ellis LLP, Chicago)
- Gregory F. Pesce (Kirkland & Ellis LLP, Chicago)
- James J. Mazza Jr. (Skadden, Arps, Slate, Meagher & Flom LLP, Chicago)
NEW CASE SUMMARY ON VOLO: HOTEL 71 MEZZ LENDER LLC V. THE NATIONAL RETIREMENT FUND (7TH CIR.)
Summarized by Bonnie Clair of Summers Compton Wells LLC
The Seventh Circuit reversed and remanded a sua sponte grant of summary judgment against a party that also unsuccessfully moved for summary judgment. The Seventh Circuit found that, absent a record "clear beyond dispute" on the facts at hand, an insufficient motion for summary judgment failed to provide grounds for a grant of summary judgment against its moving party unless the movant received notice that the court planned to consider granting summary judgment against it and received an opportunity to present evidence to demonstrate the existence of a material dispute of fact.
There are more than 1,500 appellate opinions summarized on Volo, and summaries typically appear within 24 hours of the ruling. Click here regularly to view the latest case summaries on ABI's Volo website.
NEW ON ABI'S BANKRUPTCY BLOG EXCHANGE: SEC RELEASES RULE PROPOSAL ON CORPORATE HEDGING POLICIES
A recent blog post looks at the SEC's recently released rule proposal on disclosure of hedging by employees, officers and directors, as required under the Dodd-Frank Act. To read more on this blog and all others on the ABI Blog Exchange, please click here.
INSOL International is a worldwide federation of national associations for accountants and lawyers who specialize in turnaround and insolvency. There are currently 43 member associations worldwide with more than 9,000 professionals participating as members of INSOL International. As a member association of INSOL, ABI's members receive a discounted subscription rate. See ABI's enrollment page for details.