Business Case Update: Decisions under BAPCPA Affecting Businesses and Chapter 11 Cases
by Hon. Gerardo Carlo
U.S. Bankruptcy Court; San Juan, P.R.
Judy Groves
Edwards Angell Palmer Dodge LLP; Boston
Kenneth S. Leonetti
Foley Hoag LLP; Boston
Pamela E. Phelan
Orr & Reno PA; Concord, N.H.
Prior to the enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), the provisions of §366 of the Bankruptcy Code recognized both the monopoly position usually enjoyed by utility companies and the critical role of the services they provide in the survival and reorganization prospects of a debtor in bankruptcy. Accordingly, §366 prevented discrimination against a debtor in bankruptcy and limited the circumstances under which the utility company may alter, refuse or discontinue post-petition services provided to such a debtor. A utility company was prohibited from discriminating against a debtor simply because the debtor filed a bankruptcy petition, so that a debtor that is current on its pre-petition payments cannot be treated differently from any other similarly nondelinquent customer just because of a bankruptcy filing. Equally, a debtor in bankruptcy seeking service as a new customer of the utility may not be treated differently from any other new customer seeking service.
Read the full article. (Materials from the 2006 Northeast Bankruptcy Conference)
Statutory Construction in Light of the 2005 Amendments
by Steven B. Levine
Rebecca L. Fordon
Brown Rudnick Berlack Israels LLP; Boston
Pursuant to the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), §503(c) was added to the Bankruptcy Code in order to address concerns over the “glaring abuses of the bankruptcy system by the executives who lined their own pockets, but left thousands of employees and retirees out in the cold.” Sen. Edward M. Kennedy, Statement on Bankruptcy Cloture Vote, March 8, 2005. However, while this may have been the goal of those senators and congressmen who sponsored the provision, its drafters, whether intentionally or not, worded it so poorly that, after a few months of enforcement of these provisions, it is unclear whether it effected any practical change at all.
Read the full article. (Materials from the 2006 Northeast Bankruptcy Conference)
Minutes from 2006 Annual Spring Meeting
A joint meeting of the Legislative and Pensions and Benefits in Bankruptcy Committees was held at ABI’s Annual Spring Meeting. R. Scott Williams of Haskell Slaughter Young & Rediker, LLC opened the meeting with an update on the current status of legislation in Congress, including pension legislation. He advised that Congress missed their self-imposed deadline of April 15 for a reconciliation of the bills passed by the House and Senate. Further debate is ongoing, and Congress hopes for a final resolution of this legislation before adjourning in the fall.
The departing co-chairs of the Pensions and Benefits in Bankruptcy Committee, Judy Thompson of Poyner & Spruill and Prof. G. Ray Warner, director of the LL.M. program in bankruptcy at St. John’s University School of Law, introduced the new committee leadership to the membership:
*Carol Connor Flowe – Vice Chair
*Charles Dyke – Newsletter Editor
*Kristin Going – Assistant Newsletter Editor
*John Hall – Listserve Editor
*Daniel Morse – Pension Manual Project Chair
Terrence Deneen, director of insurance programs at the Pension Benefit Guaranty Corp. (PBGC), and Carol Connor Flowe of Arent Fox gave an overview of the current status of pension/benefit issues with particular attention to the impact of business bankruptcies on the PBGC. Ms. Flowe pointed out that the PBGC is currently operating with a deficit of $23 billion, which is rising daily. She also noted that the PBGC estimates that there is an additional $450 billion in potential liability not yet asserted, coming from a few very large chapter 11 cases. Fifty-three percent of the current deficits come from companies in primary metals, and 15 percent come from air transport, with the rest spread across various industries. She predicted that the current troubles in the auto industry promise an ever-increasing burden on retirees and the PBGC.
Deneen and Flowe then presented an overview of PBGC issues in bankruptcy, focusing on minimum funding contributions, pension plan terminations, and the amount and priority of the PBGC’s claims. Deneen emphasized that the agency believes that the decisions in US Airways and United Air Lines, which upheld the use of the PBGC’s discount rate for calculating its claims after rejecting several older decisions that reached the contrary result, will be followed in future cases. This will mean much larger PBGC claims.
Members of the audience were encouraged to become involved with ABI's new Pensions and Benefits in Bankruptcy Committee. The co-chairs announced that there are multiple opportunities to write for the various publications on pensions/benefits issues and invited anyone interested in writing to contact them. The committee is currently preparing a program for the Winter Leadership Meeting in December 2006.
The Legislative Committee is continuing to monitor various legislative efforts regarding bankruptcy currently pending before Congress. At this time, it appears highly unlikely that any substantial bankruptcy revisions will pass before the end of the legislative session.