Legislation would Bring Change to Asbestos Bankruptcy Trust System

Legislation would Bring Change to Asbestos Bankruptcy Trust System

ABI Bankruptcy Brief | April 19, 2012

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April 19, 2012
 
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  NEWS AND ANALYSIS   

LEGISLATION WOULD BRING CHANGE TO ASBESTOS BANKRUPTCY TRUST SYSTEM

Legislation was introduced yesterday that would require more transparency from the asbestos bankruptcy trust system, Legal Newsline reported today. H.R. 4369, the "Furthering Asbestos Claims Transparency Act," sponsored by Rep. Ben Quayle (R-Ariz.), would require trusts to disclose claims and exposure allegations while providing third-party discovery in asbestos civil lawsuits. The trust system operates independently of the tort system. Companies that went through bankruptcy reorganization formed the trusts for the purpose of paying asbestos claimants. More than 90 companies declared bankruptcy as a result of asbestos litigation, and at least 60 created trusts designed to pay out asbestos claims. Read more.

COMMENTARY: THE FLAWS IN THE NEW LIQUIDATION AUTHORITY

If one of the large American financial institutions, such as Bank of America, were to fail under the new Dodd-Frank Orderly Liquidation Authority, the institution would be separated into nation-by-nation parts, although it was probably designed to operate as a global whole, according to a commentary by Prof. Stephen Lubben on the New York Times' DealBook Blog yesterday. In this hypothetical scenario, Lubben said that the FDIC would use the liquidation authority to put into effect a split of a good bank and a bad bank. Thus, the good bank would go into a bridge bank – likely with the bank’s domestic derivatives portfolio, since the FDIC has only 24 hours to move that. Lubben said that the bad bank would likely be slowly liquidated, using something like the liquidation trusts that are used in many large chapter 11 cases. Congress could have enacted an insolvency process that was comprehensive, but instead the authority still does not cover key parts of the financial institution, according to the commentary. Insurance companies will go into state receiverships, and banks would still be subject to separate receiverships under the banking laws. While these receiverships are most often run by the FDIC, they are governed by a distinct set of legal rules. And broker-dealers are subject to a very odd version of the normal Securities Investor Protection Act process, according to Lubben, in which the Securities Investor Protection Corporation gets to be trustee of what will likely amount to a bunch of scraps. Read the full commentary.

TARP WATCHDOG: "WE ARE LETTING OUR GUARD DOWN"

U.S. regulators and the American public have become complacent toward the dangers of another financial crisis, leaving taxpayers at risk of another bailout, a top watchdog said, the Wall Street Journal reported today. "We are letting our guard down against things like moral hazard and 'too big to fail' banks," said Christy Romero, the special inspector general for the financial-system bailout. In her report, Romero will take the Treasury Department to task for focusing too heavily on TARP repayments, a message she says is feeding into a sense that all is now well in the financial system. The Treasury last week released a report saying that taxpayers are likely to realize an overall profit from the suite of government rescue programs that was launched beginning in 2008. The Treasury called the government's response to the financial crisis "well-designed and carefully managed," and said that it prevented a collapse of the financial system while also helping the economy. Romero agrees that government programs did lend greater stability to the financial system, but called the report confusing and potentially misleading. Read more. (Subscription required.)

REGULATORS APPROVE $8 BILLION THRESHOLD FOR SWAPS DEALER

U.S. regulators agreed to a scaled-back definition of which companies will face new oversight as dealers in a portion of the derivatives market, where largely unregulated trades helped fuel the 2008 financial crisis, Bloomberg News reported today. The Commodity Futures Trading Commission (CFTC) and Securities and Exchange Commission adopted rules today defining swaps dealers as firms conducting swaps of derivatives with a notional value of $8 billion a year, up from $100 million in an earlier proposal. The threshold will fall to $3 billion after five years unless new market data persuade regulators to use a different level. CFTC Chairman Gary Gensler said that he was confident the rule would impose new requirements on the dominant players in the swaps market, even though the threshold is higher than initially proposed. Read more.

PROFILE: FOLLOWING MORTGAGE SETTLEMENT, BANK MONITOR FACES DAUNTING TASK

Joseph Smith Jr.’s primary role over the next several years will be to ensure that large banks — Wells Fargo, Citigroup, JPMorgan Chase, Bank of America and Ally Financial — live up to their end of the mortgage settlement pact by overhauling their troubled mortgage servicing operations and following through with the billions in aid they agreed to give struggling homeowners, the Washington Post reported yesterday. Smith spent many years as a corporate and banking lawyer in New York, Connecticut and North Carolina, including nearly a decade as general counsel for Centura Bank. He was appointed North Carolina banking commissioner in 2002, overseeing state-chartered banks and other lenders. Smith said that he plans to keep his own staff small and contract out a significant share of the work. Because much of the relevant data will come from the self-monitoring work of the banks themselves, Smith said that he plans to contract only with firms that can demonstrate a combination of independence from the banks and a capacity to handle the workload. Read more.

U.S. TRUSTEE PROGRAM RE-OPENS COMMENT PERIOD ON PROPOSED GUIDELINES FOR ATTORNEY COMPENSATION IN LARGE CHAPTER 11 CASES

The U.S. Trustee Program has re-opened the comment period until May 21, 2012, on proposed guidelines for reviewing applications for attorney compensation in large chapter 11 cases ("fee guidelines"). The USTP also scheduled a public meeting for June 4, 2012, at the U.S. Department of Justice in Washington, D.C. on the proposed fee guidelines. Click here for more information on submitting comments or attending the public hearing.

TOMORROW AT ASM: PROGRAM ON THE TREATMENT OF FINANCIAL CONTRACTS

The World Bank's Insolvency Initiative and ABI are jointly convening a working group to discuss the bankruptcy treatment of financial contracts at ABI's Annual Spring Meeting on Friday, April 20. As a registered attendee to this year's program, you are welcome to attend. The panels at the program include:

• Overview of Financial Contracts and Their Special Treatment in Insolvencies
• Criticisms of Special Treatment: Which Financial Contracts Warrant It?
• What Counterparties to Financial Contracts Deserve Special Treatment?
• Methods to Limit Potential Prejudice to Third Parties Resulting from Special Treatment of Financial Contracts

For more information on the World Bank Program at ASM and a list of speakers, please click here.

FREE WEBINAR ON APRIL 24 TO EXAMINE ORAL ARGUMENTS MADE BEFORE THE SUPREME COURT IN THE RADLAX CASE

Join ABI for a free webinar on April 24 at 3:30 p.m. ET featuring experts examining the Supreme Court oral arguments made the day before in the RadLAX case. The Court is examining whether a debtor may pursue a chapter 11 plan that proposes to sell assets free of liens without allowing the secured creditor to credit-bid, but instead providing it with the indubitable equivalent of its claim under § 1129(b)(2)(A)(iii) of the Bankruptcy Code. The webinar will be an hour long and will feature:

  • Jason S. Brookner of Andrews Kurth LLP (New York), who was cited in the brief for the respondent.
  • David Neff of Perkins Coie LLP (Chicago), the counsel of record for RadLAX Gateway Hotel LLC.
  • Prof. Charles Tabb, the Alice Curtis Campbell Professor of Law at the University of Illinois College of Law.Prof. Tabb recently published a paper titled "Credit Bidding, Security, and the Obsolescence of Chapter 11."
  • The moderator for the session will be ABI Resident Scholar Prof. David Epstein.

    To RSVP for the free webinar, please click here.

ABI IN-DEPTH

LATEST CASE SUMMARY ON VOLO: IN RE LEE (6TH CIR.)

Summarized by Laura Bartell of Wayne State University

The court found that the appellant had standing to bring a motion to dismiss for abuse; the bankruptcy court did not abuse its discretion in dismissing the debtor's case under § 1112(b); the bankruptcy court did not abuse its discretion in dismissing debtor's case with prejudice for 180 days under § 109(g); and the bankruptcy court did not abuse its discretion in granting in rem relief with respect to the debtor's property under §§ 362(d)(4) and 105 with respect to the debtor and those in contractual privity with debtor. The court remanded the bankruptcy court's order with instructions to enter an amended order that provides relief consistent with the bankruptcy court's ruling at the hearing on the motion.

More than 470 appellate opinions are summarized on Volo typically 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: FDIC ASKING WRONG QUESTIONS ABOUT COMMUNITY BANKS

The Bankruptcy Blog Exchange is a free ABI service that tracks 35 bankruptcy-related blogs. A recent blog post examines the FDIC’s seemingly contradictory approach regarding smaller banks.

Be sure to check the site several times each day; any time a contributing blog posts a new story, a link to the story will appear on the top. If you have a blog that deals with bankruptcy, or know of a good blog that should be part of the Bankruptcy Exchange, please contact the ABI Web team.

SAVE THE DATE FOR THE LABOR & EMPLOYMENT COMMITTEE'S "EVOLVING LABOR ISSUES IN CHAPTER 11" WEBINAR

Make sure to mark your calendars for May 23 from 2-3 p.m. ET for the ABI Labor and Employment Committee's "Evolving Labor Issues in Chapter 11" Webinar. A panel of experts will be discussing recent developments in several large complex bankruptcy cases, including Hostess, Kodak, Nortel and American Airlines. The expert panel includes Babette A. Ceccotti of Cohen, Weiss & Simon LLP (New York), Jeffrey B. Cohen of Bailey & Ehrenberg PLLC (Washington, D.C.), Marc Kieselstein of Kirkland & Ellis LLP (New York) and Ron E. Meisler of Skadden, Arps, Slate, Meagher & Flom LLP. Issues to be discussed include:

• Hostess' efforts to eliminate their multi-employer pension plan contribution liability through motions to reject their labor agreements under Section 1113.
• Kodak's attempt to terminate retiree health benefits.
• The effect of the automatic stay upon efforts by the U.K. Pension Protection Fund and the U.K. Nortel Pension Plan to enforce its powers under the U.K. Pensions Act.
• American Airlines' efforts to reduce legacy costs in bankruptcy.

A registration link is forthcoming, but make sure to mark your calendars for May 23 for a webinar you will not want to miss!

ABI Quick Poll
Section 363 sales should be possible only for a limited percentage of assets; sales of a greater percentage of assets should be subject to creditor voting in the plan confirmation process. Click here to vote on this week's Quick Poll. Click here to view the results of previous Quick Polls.

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Free Webinar on the Oral Arguements before the Supreme Court in the RadLAX case
April 24, 2012
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  CALENDAR OF EVENTS

April
- Webinar on RadLAX Case
     April 24, 2012 | 3:30 p.m. ET

May
- New York City Bankruptcy Conference
     May 9, 2012 | New York, N.Y.
- Save the Date: ABI Labor and Employment Committee's "Evolving Labor Issues in Chapter 11" Webinar
     May 23, 2012

June
- Memphis Consumer Bankruptcy Conference
     June 1, 2012 | Memphis, Tenn.

  


- Central States Bankruptcy Workshop
     June 7-10, 2012 | Traverse City, Mich.

July
- Northeast Bankruptcy Conference and Northeast Consumer Forum
     July 12-15, 2012 | Bretton Woods, N.H.
- Southeast Bankruptcy Workshop
     July 25-28, 2012 | Amelia Island, Fla.

August
- Mid-Atlantic Bankruptcy Workshop
     August 2-4, 2012 | Cambridge, Md.

 
 
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