|NEWS AND ANALYSIS
HOUSE SUBCOMMITTEE SPARS OVER ASBESTOS CLAIM TRANSPARENCY LEGISLATION
by ABI Resident Scholar Prof. Anne Lawton
Members of the House Judiciary Subcommittee on Regulatory Reform, Commercial and Antitrust Law yesterday sparred at a hearing over H.R. 526, the "Furthering Asbestos Claim Transparency (FACT) Act of 2015." Introduced in the House by Rep. Blake Farenthold (R-Texas), Vice-Chairman of the Subcommittee, H.R. 526 would amend § 524(g) of the Bankruptcy Code to require asbestos trusts created in chapter 11 reorganization cases to file quarterly reports with the bankruptcy court. The bill requires that the reports, which would be made available on the court's public docket, include not only the names and exposure histories of trust claimants, but also the amounts paid and the basis for making payments to claimants. The nature of questions asked by Subcommittee members broke down along party lines. Republicans focused on the need for transparency to avoid double-dipping and fraud so as to preserve asbestos trust assets for future claimants. Citing to the tactics of asbestos claimants' lawyers decried in an order by Judge George Hodges in the chapter 11 case of In re Garlock Sealing Technologies, LLC, Republicans on the Subcommittee expressed concern that the lack of transparency in the asbestos trust system creates an environment ripe for fraud. Democrats, on the other hand, asked whom the proposed legislation benefits, noting that neither asbestos victims nor the asbestos trusts support the FACT Act. Click here to read the full hearing summary.
For more on asbestos and other trusts in bankruptcy, pre-order your copy of ABI's A Practitioner's Guide to Liquidation and Litigation Trusts, now in the ABI Bookstore.
REPORT: U.S. FAMILIES IN STATE OF FINANCIAL STRESS
A new analysis by the Pew Charitable Trusts found that even as the national economy continues to recover from the Great Recession, most U.S. families remain financially fragile, ACAInternational.org reported today. The findings in the report reveal widespread financial fragility, including:
- Although income and earnings have increased over the past 30 years, they have changed little in the past decade. The typical worker had wage growth of 22 percent between 1979 and 1999, but just 2 percent from 1999 to 2009.
- Substantial fluctuations in family incomes are the norm. In any given two-year period, nearly half of households experience an income gain or drop of more than 25 percent, a rate of volatility that has been relatively constant since 1979.
- The majority of American households (55 percent) are savings-limited, meaning they can replace less than one month of their income through liquid savings.
To read the full report, please click here.
ANALYSIS: S&P SETTLEMENT LEAVES FUTURE UNCLEAR FOR RATINGS
It cost $1.37 billion, but Standard & Poor's finally appears to have closed the darkest chapter in its 150-year history as a rating agency, the New York Times DealBook blog reported yesterday. Although that payout, announced on Tuesday, will settle an array of government lawsuits that accused S&P of inflating the ratings of subprime mortgage investments, it does not represent closure for the broader ratings business. An uncertain future still lies ahead for S&P and its main rivals, Moody's and Fitch. In the wake of the financial crisis, when rating agencies were blamed for feeding a subprime mortgage frenzy, Congress used the Dodd-Frank Act to adopt a battery of changes for the rating industry. S&P, Moody's and Fitch announced their own cultural overhauls and struck a competitive tone about whose ratings were the strictest. Despite upstart ventures challenging a ratings oligopoly, S&P, Moody's and Fitch still dominate the market. Huge pension funds, some of the same investors that took a beating during the crisis, still consider ratings to be a cornerstone of the financial system. At the heart of the problem, some lawmakers say, is the rating agency business model. The agencies are paid by the same banks and companies they rate, and when market share declines, a rating agency might lower its standards to attract new business, a concern that underpinned the Justice Department lawsuit that S&P settled on Tuesday. Read more.
RADIOSHACK STORE CLOSINGS TO JOLT SOME DEVELOPERS
Many small, regional real estate investors are preparing for life after RadioShack, the Wall Street Journal reported today. The Fort Worth, Texas, electronics chain's restructuring will almost certainly involve the shutdown of at least a significant chunk of its roughly 4,000 U.S. stores, the vast majority of which it leases. The company is preparing to file for bankruptcy protection and is in talks with Sprint Corp. on a deal that would see the wireless operator partner with an investment firm to operate about half of the RadioShack outlets. The thousands of stores not part of the possible Sprint deal will likely close. Landlords are preparing for the possibility that locations might sit vacant for months as they search for new tenants. In addition, RadioShack is already behind on its rent at some stores, and property owners' chances of recovering much of that unpaid rent in bankruptcy are slim. Read more. (Subscription required.)
DETROIT PENSION CUTS FROM BANKRUPTCY PROMPT CRIES OF BETRAYAL
Pension checks will shrink 6.7 percent for 12,000 Detroit retirees beginning in March, Bloomberg News reported today. Making matters worse, many must also pay back thousands of dollars of excess interest they received. As retirement costs swallow larger portions of U.S. city budgets, Detroit's bankruptcy plan resolved a pension crisis with creative strokes, though at a cost to retirees who thought their benefits were untouchable. In addition to absorbing pension cuts, almost 11,000 retirees and current employees must repay an estimated $212 million in excess interest they accrued in a city-run savings plan, which is separate from the pension fund. The annuity plan guaranteed a 7.9 percent annual return even when the pension lost money, and employees also received bonus interest in some years. Read more.
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)
- Craig T. Fessenden (Pension Benefit Guaranty Corp., Washington, D.C.) (invited)
- Theresa Anderson (Pension Benefit Guaranty Corp., Washington, D.C.) (invited)
Click here to register.
ACB EVENT ON CAPITOL HILL ON FEB. 13 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 CASE SUMMARY ON VOLO: WILLIAMS V. LIVING HOPE SOUTHEAST LLC (8TH CIR.)
Summarized by Lars Fuller of BakerHostetler
The Eighth Circuit BAP affirmed the order of the bankruptcy court (W.D. Ark. - Texarkana) denying the debtor's motion for reconsideration following the bankruptcy court's sanction order. The BAP concluded that the bankruptcy court did not err in first concluding that the debtor violated Rule 9011, and then in awarding fees and costs to the movant as the prevailing party. The debtor failed to support with evidence his assertion that he was unable to pay, and the BAP ruled that ability to pay was not a factor for consideration under Rule 9011(c)(1)(A).
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: THE MISSION REGULATORS FORGOT: ENDING "TBTF"
A recent blog post says that regulators are confused about whether to use capital buffers as a tool to stamp out too-big-to-fail banks or as a cushion to protect the financial system from the next crisis. But the Dodd-Frank Act gives them a clear mandate: to eliminate market expectations of a government bailout. To read more on this blog and all others on the ABI Blog Exchange, please click here.
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