S. 610 Chemical Weapons Convention Implementation Act of 1997
Section 603 of Chemical Weapons Convention Implementation Act Would Reduce Reach of Automatic Stay
Editor's Note: Other Commentary on Section 603 of S. 610:
- Big Changes in Stay Exemptions Brewing: The Chemical Weapons Convention Implementation Act of 1997, a criticism of the proposal by Prof. Bruce A. Markell, June 25, 1997
- Brewing a Tempest in a Teapot: A Response to Professor Markell, in support of the proposal by Karen Cordry, July 1, 1997
- Memorandum to Sen. Grassley in support of the proposal prepared by Heidi Heitkamp, June 23, 1997
- A response to Karen Cordry by Prof. Markell Includes proposed section addressing automatic stay concerns of S. 610, July 1997
- A response to Prof. Markell by Karen Cordry, July 18, 1997
- Memorandum prepared by the ABI, June 1997
On May 23, 1997, the Senate by voice vote passed S. 610, the Chemical Weapons Convention Implementation Act.
Section 603 of the Bill amends Section 362(b) of the Bankruptcy Code by dramatically reducing the reach of the automatic stay imposed on governmental units. Section 362 of the Bankruptcy Code is known as the automatic stay. It provides a sweeping halt to enumerated collection efforts automatically upon the filing of a bankruptcy petition. This provision is a critical implement in the Bankruptcy Code's tool set for fixing the affairs of a debtor in financial trouble. It provides the debtor or appointed trustee with a breathing spell after the filing of a petition. By halting creditor actions against the debtor and its property, the automatic stay permits the implementation of a statutory scheme which attempts a fair and equal treatment of creditor claims consistent with the priorities established by the Bankruptcy Code. For these reasons the automatic stay is said to benefit both the debtor and its creditors.
The exceptions to the automatic stay are set forth in Section 362(b). For either policy or practical reasons, the listed actions are not subject to immediate halt upon the filing of a bankruptcy case. Section 362(b)(4) allows for the commencement or continuation of an action or proceeding by a governmental unit to enforce its police or regulatory power. Section 362(b)(5) allows for the enforcement of a judgment, other than a money judgment, obtained by a governmental unit to enforce its police or regulatory power. The legislative history suggested that these exceptions were to be narrowly construed to permit a governmental unit to protect the public health and safety, but not to permit the governmental unit to protect a monetary interest in the debtor's property.
Section 603 of S. 610 attempts to rewrite Sections 362(b)(4) and (5) into a new Section (4). In the first instance, Section 603 of S. 610 addresses the legitimate concerns of the Chemical Weapons Convention by adding "any organization exercising authority under the Convention on the Prohibition of the Development, Production, Stockpiling and Use of Chemical Weapons and on their Destruction, opened for signature on January 18, 1993," to the governmental unit's statutory exception. This change appears to be an appropriate amendment necessary to implement the Convention's mandate. The international body that oversees the Convention is not a governmental body within the Bankruptcy Code's definition so that body either must be added to the definition of governmental body or added to the kind of entity that may enforce its police or regulatory authority without hindrance from the automatic stay.
However, the effect of the language of Section 603 would not be limited to actions in connection with the Chemical Weapons Convention, but rather would extend to all governmental units and all types of actions. Thus Section 603 would have substantial and far-reaching implications for the entire bankruptcy reorganization process. There is a significant split of opinion about the appropriate application of the stay to governmental units. Indeed, I participated in a lengthy debate of these very issues before the National Bankruptcy Review Commission in October, 1996, and the subject is now under careful consideration by the Commission. Such a major change in the current balance of interests, as proposed by Section 603, should not be considered without a full public airing of the various points of view. This is particularly true given that the Commission's recommendations in the area are due to be released to Congress in just four months.
The following examples illustrate the potential unintended impact of Section 603. Each is
subject to debate about whether the government's police and regulatory power is involved, or
whether the government is acting in some other capacity. The problem is that the authorization
provided for by Section 603 of unilateral action by the governmental unit makes any consideration
of the "capacity" question a post mortem debate.
- The Federal Communications Commission could revoke or seize a radio or television station license for failure to pay a pre-petition obligation, even though the payment of such an obligation is prohibited by other sections of the Bankruptcy Code.
- A local governmental unit charged with the responsibility of controlling liquor licenses could revoke or seize such a license unilaterally.
Deletion of Section 603 of the Bill will not limit the government's police and regulatory powers but rather leave them where they are today, in need of a court order to modify the automatic stay, except for the existing exceptions. Such a process provides an opportunity for a hearing on the merits, at which time all parties can be heard and all arguments considered by the court.
In sum, Section 603, if enacted, would clearly change the prospects for a successful reorganization for many entities, and significantly shift the balance of power in the bankruptcy process in favor of certain governmental creditors over all others, including other governmental creditors, lenders, trade creditors and the debtor. While Congress can legitimately elect to approve such a shift, it should do so only after having the benefit of a thorough public debate.
For these reasons, the ABI urges the deletion of Section 603 from this Bill, or to modify it in a way to narrow its effect to chemical weapons matters.
Note: The above was forwarded to Rep. Henry J. Hyde, Chairman of the House Committee on the Judiciary; Rep. Newt Gingrich, Speaker of the House; Rep. Richard Gephardt, Minority Leader; and Rep. John Conyers, Jr., Ranking Member of the House.