Mr. Speaker, I submit the following. Summary Throughout our Nation's history, hardworking American men and women have labored to make our businesses become the most productive and dynamic in the…
Mr. Speaker, I submit the following.
Summary
Throughout our Nation's history, hardworking American men
and women have labored to make our businesses become the most
productive and dynamic in the world. Unfortunately, when some
of these businesses encounter financial difficulties and seek
to reorganize their debts under Chapter 11 of the Bankruptcy
Code, these very same workers and retirees are often asked to
make major sacrifices through lost job protections, lower
wages, and the elimination of hard-won pension and health
benefits, while the executives and managers of these business
are not required to make comparable sacrifices.
We must do more to ensure that America's most important
resource--workers and retirees--are treated more fairly when
these business seek to reorganize their financial affairs
under the protection of our bankruptcy laws. The Protecting
Employees and Retirees in Business Bankruptcies Act of 2015
accomplishes this goal by amending the Bankruptcy Code in
several respects. First, it improves recoveries for employees
and retirees by: (1) increasing the amount of worker claims
entitled to priority payment for unpaid wages and
contributions to employee benefit plans up to $20,000; (2)
eliminating the difficult to prove restriction in current law
that wage and benefit claims must be earned within 180 days
of the bankruptcy filing in order to be entitled to priority
payment; (3) allowing employees to assert claims for losses
in certain defined contribution plans when such losses result
from employer fraud or breach of fiduciary duty; (4)
establishing a new priority administrative expense for
workers' severance pay; and (5) clarifying that back pay
awards for WARN Act damages are entitled to the same priority
as back pay for other legal violations.
Second, the legislation reduces employees' and retirees'
losses by: (1) restricting the conditions under which
collective bargaining agreements and commitments to fund
retiree pensions and health benefits may be eliminated or
adversely affected; (2) preventing companies from singling
out non-management retirees for concessions; (3) requiring a
court to consider the impact a bidder's offer to purchase a
company's assets would have on maintaining existing jobs and
preserving retiree pension and health benefits; and (4)
clarifying that the principal purpose of Chapter 11
bankruptcy is the preservation of jobs to the maximum extent
possible
Third, the bill restricts excessive executive compensation
programs by: (1) requiring full disclosure and court approval
of executive compensation packages; (2) restricting the
payment of bonuses and other forms of incentive compensation
to senior officers and others; and (3) ensuring that insiders
cannot receive retiree benefits if workers have lost their
retirement or health benefits.
This legislation is identical to H.R. 100, introduced in
the 113th Congress, and H.R. 6117, introduced in the 112th
Congress. It is supported by the AFL-CIO and many of its
largest affiliates, and the United Steelworkers.
section-by-section explanation of the bill
Sec. 1. Short Title. Section 1 sets forth the short title
of the bill as the ``Protecting Employees and Retirees in
Business Bankruptcies Act of 2015.'' It also includes a table
of contents for the bill.
Sec. 2. Findings. Section 2 sets forth various findings in
support of this bill.
Title I--Improving Recoveries for Employees and Retirees
Sec. 101. Increased Wage Priority. Bankruptcy Code section
507 accords priority in payment status for certain types of
claims, i.e., these priority claims must be paid in full in
the order of priority before general unsecured claims may be
paid. Section 507(a)(4) accords a fourth level priority to an
unsecured claim up to $10,000 owed to an individual for
wages, salaries, or commissions (including vacation,
severance, and sick leave pay) earned within the 180-day
period preceding the filing of the bankruptcy case or the
date on which the debtor's business ceased, whichever occurs
first. Section 101 amends section 507(a)(4) to increase the
amount of the priority to $20,000 and eliminate the 180-day
reachback limitation.
Bankruptcy Code section 507(a)(5) accords a fifth level
priority for unsecured claims for contributions to an
employee benefit plan arising from services rendered within
the l80-day period preceding the filing of the bankruptcy
case or the date on which the debtor's business ceased
(whichever occurs first). The amount of the claim is based on
the number of employees covered by the plan multiplied by
$10,000, less the aggregate amount paid to such employees
pursuant to section 507(a)(4) and the aggregate amount paid
by the estate on behalf of such employees to any other
employee benefit plan. Section 101 amends Bankruptcy Code
section 507(a)(5) to: (1) increase the priority amount to
$20,000; (2) eliminate the offset requirements; and (3)
eliminate the 180-day limitation.
Sec. 102. Claim for Stock Value Losses in Defined
Contribution Plans. Section 102 amends the Bankruptcy Code's
definition of a claim to include a right or interest in
equity securities of the debtor (or an affiliate of the
debtor) held in a defined contribution plan for the benefit
of an individual who is not an insider, senior executive
officer or one of the 20 next most highly compensated
employees of the debtor (if one or more are not insiders),
providing: (1) such securities were attributable to employer
contributions by the debtor (or an affiliate of the debtor),
or by elective deferrals, together with any earnings thereon;
and (2) the employer or plan sponsor who commenced the
bankruptcy case either committed fraud with respect to such
plan or otherwise breached a duty to the participant that
proximately caused the loss of value.
Sec. 103. Priority for Severance Pay. Bankruptcy Code
section 503(b) establishes an administrative expense payment
priority for certain types of unsecured claims. Among all
types of unsecured claims, administrative expenses are
accorded the highest payment priority, i.e., they must be
paid in full before priority and general unsecured claims may
be paid. Section 103 amends section 503(b) to accord
administrative expense priority for severance pay owed to the
debtor's employees (other than an insider, other senior
management, or a consultant retained to provide services to
the debtor) under a plan, program or policy generally
applicable to the debtor's employees (but not under an
individual contract of employment) or owed pursuant to a
collective bargaining agreement for termination or layoff on
or after the date the bankruptcy case was filed. Such pay is
deemed earned in full upon such termination or layoff.
Sec. 104. Financial Returns for Employees and Retirees.
Bankruptcy Code section 1129(a) specifies various criteria
that must be satisfied before a chapter 11 plan of
reorganization may be confirmed. Section 104 amends section
1129(a) to add a further requirement. The plan must provide
for the recovery of damages for the rejection of a collective
bargaining agreement or for other financial returns as
negotiated by the debtor and the authorized representative
under section 1113 to the extent such returns are paid under,
rather than outside of a plan.
Section 104 also replaces Bankruptcy Code section
1129(a)(13), which pertains to the payment of retiree
benefits under section 1114. As revised, section 1129(a)(13)
requires a plan to provide for the continuation after the
plan's effective date of the payment of all retiree benefits
at the level established under
either section 1114(e)(1)(B) or (g) at any time prior to
confirmation of the plan, for the duration of the period for
which the debtor has obligated itself to provide such
benefits. If no modifications are made prior to confirmation
of the plan, the plan must provide for the continuation of
all retiree benefits maintained or established in whole or in
part by the debtor prior to the petition filing date. In
addition, the plan must provide for recovery of claims
arising from the modification of retiree benefits and other
financial returns as negotiated by the debtor and the
authorized representative to the extent such returns are paid
under, rather than outside of, a plan.
Sec. 105. Priority for WARN Act Damages. Section 105 amends
Bankruptcy Code section 503(b)(1)(A)(ii) to provide
administrative expense status to wages and benefits awarded
pursuant to a judicial or National Labor Relations Board
proceeding as back pay or damages attributable to any period
of time occurring after the commencement of the bankruptcy
case. This provision applies where the award was made as a
result of the debtor's violation of federal or state law,
without regard to the time of the occurrence of unlawful
conduct on which the award is based or to whether any
services were rendered on or after the commencement of the
bankruptcy case. It includes an award by a court under
section 2901 of title 29 of the United States Code of up to
60 days' pay and benefits following a layoff that occurred or
commenced at a time when such award period includes a period
on or after the commencement of the case, if the court
determines that payment of wages and benefits by reason of
the operation of this clause will not substantially increase
the probability of layoff or termination of current employees
or of nonpayment of domestic support obligations during the
case under this title.
Title II--Reducing Employees' and Retirees' Losses
Sec. 201. Rejection of Collective Bargaining Agreements.
Bankruptcy Code section 1113 sets forth the requirements by
which a collective bargaining agreement may be assumed or
rejected. Section 201 amends section 1113 in several
respects. First, it amends section 1113(a) to clarify that a
chapter 11 debtor may reject a collective bargaining
agreement only in accordance with section 1113.
Second, it amends Bankruptcy Code section 1113(b) to
clarify that no provision in title II of the United States
Code may be construed to permit a trustee to unilaterally
terminate or alter the terms of a collective bargaining
agreement absent compliance with section 1113. The provision
further specifies that the trustee must timely pay all
monetary obligations arising under such agreement and that
any payment required to be made pre-confirmation has the
status of an allowed administrative expense under Code
section 503.
Third, it amends Bankruptcy Code section 1113(c) to require
a trustee, when seeking to modify a collective bargaining
agreement, to provide notice of such proposed modification to
the labor organization representing the employees covered by
the agreement. The trustee must also promptly provide an
initial proposal for modification. In addition, the trustee
must confer in good faith with the labor organization, at
reasonable times and for a reasonable period, given the
complexity of the case, in an effort to reach a mutually
acceptable modification of the agreement. Each modification
proposal must be based on a business plan for the
reorganization of the debtor and reflect the most complete
and reliable information. As amended, section 1113(c)
requires the trustee to provide to the labor organization all
information relevant for negotiations. If such disclosure
could compromise the debtor's position with respect to its
competitors in the industry, the provision authorizes the
court to issue a protective order, subject to the needs of
the labor organization to evaluate the trustee's proposal and
any application to reject the collective bargaining agreement
or for interim relief under section 1113.
In consideration of federal policy encouraging the practice
and process of collective bargaining and in recognition of
the bargained-for expectations of the employees covered by
the agreement, any modification proposed by the trustee must:
(1) only be proposed as part of a program of workforce and
nonworkforce cost savings devised for the debtor's
reorganization, including savings in management personnel
costs; (2) be limited to modifications designed to achieve a
specified aggregate financial contribution for employees
covered by the agreement, taking into consideration any labor
cost savings negotiated within the 12-month period prior to
the filing of the bankruptcy case; (3) be no more than the
minimum savings essential to permit the debtor to exit
bankruptcy, such that confirmation is not likely to be
followed by the liquidation or the need for further financial
reorganization of the debtor; and (4) not be disproportionate
or overly burden the employees covered by the agreement,
either in the amount of the cost savings sought from such
employees or the nature of the modifications.
Fourth, it amends Bankruptcy Code section 1113(d) to
provide that if the trustee and the labor organization (after
a period of negotiations) do not reach an agreement over
mutually satisfactory modifications and further negotiations
are not likely to produce mutually satisfactory
modifications, the trustee may file a motion seeking
rejection of the collective bargaining agreement after notice
and a hearing. Absent agreement by the parties, the hearing
may not be held earlier than 21 days from when notice of the
hearing is provided. Only the debtor and the labor
organization may appear and be heard at the hearing. An
application for rejection must seek rejection effective upon
the entry of an order granting such relief.
In consideration of federal policy encouraging the practice
and process of collective bargaining and in recognition of
the bargained-for expectations of the employees covered by
the agreement, section 1113(d) (as amended) provides that the
court may grant a motion seeking rejection of such agreement
only if the court: (1) finds that the trustee has complied
with the requirements of section 1113(c); (2) has considered
alternative proposals by the labor organization and concluded
that such proposals do not meet the requirements of section
1113(c)(3)(B); (3) finds that further negotiations regarding
the trustee's proposal or an alternative proposal by the
labor organization are not likely to produce an agreement;
(4) finds that implementation of the trustee's proposal will
not: (a) cause a material diminution in the purchasing power
of the employees covered by the agreement, (b) adversely
affect the debtor's ability to retain an experienced and
qualified workforce; or (c) impair the debtor's labor
relations such that the ability to achieve a feasible
reorganization will be compromised; and (5) concludes, based
on clear and convincing evidence, that rejection of the
agreement and immediate implementation of the trustee's
proposal is essential to permit the debtor's exit from
bankruptcy such that confirmation is not likely to be
followed by the liquidation or the need for further financial
reorganization of the debtor in the short term. If the
trustee has implemented a program of incentive pay, bonuses
or other financial returns for insiders, senior executive
officers, or the 20 next most highly compensated employees or
consultants (or such a program was implemented within 180
days before the bankruptcy case was filed), the court must
presume that the debtor has failed to satisfy the
requirements of section 1113(c)(3)(C).
Subsection (d), as amended, prohibits the court from
entering an order rejecting a collective bargaining agreement
that would result in modifications to a level lower than that
proposed by the trustee in the proposal found by the court to
have complied with the requirements of section 1113.
At any time after an order rejecting a collective
bargaining agreement is entered (or mutually satisfactory
agreement between the trustee and the labor organization is
entered into), the labor organization may apply to the court
for an order seeking an increase in the level of wages or
benefits or relief from working conditions based on changed
circumstances. The court must grant such relief only if the
increase or other relief is not inconsistent with the
standard set forth in section 1113(d)(2)(E).
Fifth, section 201 amends Bankruptcy Code section 1113(e)
to provide that during the period in which a collective
bargaining agreement at issue under this section continues in
effect and if either essential to the continuation of the
debtor's business or in order to avoid irreparable damage to
the estate, the court, after notice and a hearing, may
authorize the trustee to implement interim changes in the
terms, conditions, wages, benefits, or work rules provided by
the collective bargaining agreement. Any hearing under this
provision must be scheduled in accordance of the trustee's
needs. The implementation of such interim changes will not
render the application for rejection moot.
Sixth, section 201 amends Bankruptcy Code section 1113(f)
to provide that the rejection of a collective bargaining
agreement constitutes a breach of such agreement and is
effective no earlier than the entry of an order granting such
relief. Solely for the purpose of determining and allowing a
claim arising from rejection of a collective bargaining
agreement, such rejection must be treated as a rejection of
an executory contract under Bankruptcy Code section 365(g)
and shall be allowed or disallowed in accordance with section
502(g)(1). Subsection (f), as amended, further provides that
no claim for rejection damages may be limited by section
502(b)(7). In addition, the provision permits economic self-
help by a labor organization upon a court order granting
rejection of a collective bargaining agreement under either
subsection (d) or (e) of section 1113. It further provides
that neither title 11 of the United States Code nor other
provisions of State or Federal law may be construed to the
contrary.
Seventh, section 201 adds new subsection (g) to require the
trustee to provide for the reasonable fees and costs incurred
by a labor organization under section 1113, upon request and
after notice and a hearing.
Eighth, section 201 adds new subsection (h) to require the
assumption of a collective bargaining agreement to be done in
accordance with section 365.
Sec. 202. Payment of Insurance Benefits to Retired
Employees. Bankruptcy Code section 1114 sets out criteria
pursuant to which a debtor may modify retiree benefits, among
other matters. Retiree benefits include payments to retired
employees, their spouses, and dependents for medical,
surgical, and hospital care benefits. It also includes
benefits in the event of sickness, accident, disability, or
death under any plan, fund or program.
Section 202 amends section 1114 in several respects. First,
it amends the provision's definition of ``retiree benefits''
to specify that
it applies whether or not the debtor asserts a right to
unilaterally modify such benefits under such plan, fund or
program.
Second, it amends Bankruptcy Code section 1114(b)(2), which
specifies the rights, powers and duties of a committee of
retired employees appointed by the court. As amended, the
provision would apply to a labor organization serving as the
authorized representative under section 1114(c)(1).
Third, section 202 replaces Bankruptcy Code section
1114(f), which requires a trustee to make a proposal to the
authorized representative before seeking modification of
retiree benefits. As amended, section 1114(f)(1) specifies
that if a trustee seeks to modify retiree benefits, the
trustee must provide notice of such proposed modification to
the authorized representative as well as promptly provide the
initial proposal. In addition, the trustee must thereafter
confer in good faith with the labor organization, at
reasonable times and for a reasonable period, given the
complexity of the case, in attempting to reach a mutually
satisfactory modification. Each modification must be based on
a business plan for the reorganization of the debtor and
reflect the most complete and reliable information available.
The trustee must provide the authorized representative all
information relevant for the negotiations. If such disclosure
could compromise the debtor's position with respect to its
competitors in the industry, the court may issue a protective
order, subject to the needs of the authorized representative
to evaluate the trustee's proposal and an application
pursuant to subsection (g) or (h).
Modifications proposed by the trustee must: (1) only be
proposed as part of a program of workforce and nonworkforce
cost savings devised for the reorganization of the debtor,
including savings in management personnel costs; (2) be
limited to modifications designed to achieve a specified
aggregate financial contribution for the retiree group
represented by the authorized representative (taking into
consideration any labor cost savings negotiated within the
12-month period prior to the filing of the bankruptcy case
with respect to the retiree group); (3) be no more than the
minimum savings essential to permit the debtor to exit
bankruptcy, such that confirmation is not likely to be
followed by the liquidation or the need for further financial
reorganization of the debtor; and (4) not be disproportionate
or overly burden the retiree group, either in the amount of
the cost savings sought from such group or the nature of the
modifications.
Fourth, section 202 amends Bankruptcy Code section 1113(g)
to provide that if the trustee and the authorized
representative do not reach a mutually satisfactory agreement
(after a period of negotiations) and further negotiations are
not likely to produce mutually satisfactory modifications,
the trustee may file a motion seeking to modify the payment
of retiree benefits after notice and a hearing. Absent
agreement of the parties, the hearing may not be held earlier
than 21 days from when notice of the hearing is provided.
Only the debtor and the authorized representative may appear
and be heard at the hearing.
The court may grant a motion to modify the payment of
retiree benefits only if the court: (1) finds that the
trustee complied with the requirements of section 1114(f);
(2) considered any of the authorized representative's
alternative proposals and determined that such proposals do
not meet the requirements of section 1114(f)(3)(B); (3) finds
that further negotiations are not likely to produce a
mutually satisfactory agreement; (4) finds that
implementation of the trustee's proposal will not cause
irreparable harm to the affected retirees; and (5) concludes
that, based on clear and convincing evidence, an order
granting the trustee's proposal and its immediate
implementation is essential to permit the debtor's exit from
bankruptcy such that confirmation is not likely to be
followed by the liquidation or the need for further financial
reorganization of the debtor in the short term.
If the trustee has implemented a program of incentive pay,
bonuses, or other financial returns for insiders, senior
executive officers, or the 20 next most highly compensated
employees or consultants (or such program was implemented
within 180 days before the bankruptcy case was filed), the
court must presume that the debtor failed to satisfy the
requirements of section 1114(f)(3)(C).
Fifth, section 202 strikes subsection (k) and makes
conforming revisions.
Sec. 203 Protection of Employee Benefits in a Sale of
Assets. Section 203 amends Bankruptcy Code section 363(b),
which authorizes a debtor to sell or use property of the
estate other than in the ordinary course of business (under
certain circumstances), to add a new requirement. New section
365(b)(3) requires the court, in approving a sale, to
consider the extent to which a bidder's offer: (1) maintains
existing jobs; (2) preserves terms and conditions of
employment, and (3) assumes or matches pension and retiree
benefit obligations in determining whether such offer
constitutes the highest or best offer for the property.
Sec. 204. Claim for Pension Losses. Section 204 adds a new
subsection to Bankruptcy Code section 502, which pertains to
the allowance of claims and interests. New subsection (1)
requires the court to allow a claim by an active or retired
participant (or by a labor organization representing such
participants) in a defined benefit pension plan terminated
under section 4041 or 4042 of the Employee Retirement Income
Security Act of 1974 (ERISA) for any shortfall in pension
benefits accrued as of the effective date of the pension
plan's termination as a result of such termination and
limitations upon the payment of benefits imposed pursuant to
section 4042 of such Act, notwithstanding any claim asserted
and collected by the Pension Benefit Guaranty Corporation
with respect to such termination.
In addition, section 204 adds subsection (m) to Bankruptcy
Code section 502 to require a court to allow a claim
described in Bankruptcy Code section 101(5)(C) (as amended by
this legislation) by an active or retired participant (or a
labor union representing such participant) in a defined
contribution plan (within the meaning of section 3(34) of
ERISA). The amount of such claim must be measured by the
market value of the stock at the time of contribution to, or
purchase by, the plan and the value as of the commencement of
the case.
Sec. 205. Payments by Secured Lender. Bankruptcy Code
section 506(c) authorizes the debtor to recover from property
securing an allowed secured claim the reasonable and
necessary expenses incurred to preserve or dispose of such
property to the extent the secured creditor benefits from
such expenditures. Section 205 amends section 506(c) to add a
new provision. As amended, section 506(c) deems unpaid wages,
accrued vacation, severance or other benefits owed under the
debtor's policies and practices or owed pursuant to a
collective bargaining agreement, for services rendered on and
after commencement of the case to be necessary costs and
expenses of preserving or disposing of property securing an
allowed secured claim. Such obligations must be recovered
even if the trustee has otherwise waived the provisions of
section 506(c) pursuant to an agreement with the allowed
secured claimant or a successor or predecessor in interest.
Sec. 206. Preservation of Jobs and Benefits. Section 206
adds a statement of purpose to chapter 11 of the Bankruptcy
Code specifying that a chapter 11 debtor must have as its
principal purpose the reorganization of its business to
preserve going concern value to the maximum extent possible
through the productive use of its assets and the preservation
of jobs that will sustain productive economic activity.
In addition, section 206 amends Bankruptcy Code section
1129(a), which sets out the criteria for confirming a plan,
to add a new requirement. New section 1129(a)(17) requires
the debtor to demonstrate that the reorganization preserves
going concern value to the maximum extent possible through
the productive use of the debtor's assets and preserves jobs
that sustain productive economic activity.
Section 206 also amends Bankruptcy Code section 1129(c),
which requires the court to consider the preferences of
creditors and equity security holders in determining which
plan to confirm. Section 1129(c), as amended, instead
requires the court to consider the extent to which each plan
would preserve going concern value through the productive use
of the debtor's assets and the preservation of jobs that
sustain productive economic activity. The court must confirm
the plan that better serves such interests. It further
provides that a plan that incorporates the terms of a
settlement with a labor organization shall presumptively
constitute the plan that satisfies this provision.
Sec. 207. Termination of Exclusivity. Bankruptcy Code
section 1121, in pertinent part, gives a debtor the exclusive
authority to file a plan and obtain acceptances of such plan
for stated periods of time, under certain circumstances.
Section 207 amends section 1121 to specify that cause for
shortening these exclusive periods includes: (1) the filing
of a motion pursuant to section 1113 seeking rejection of a
collective bargaining agreement, if a plan based upon an
alternative proposal by the labor organization is reasonably
likely to be confirmed within a reasonable time; or (2) the
proposed filing of a plan by a proponent other than the
debtor, which incorporates the terms of a settlement with a
labor organization, if such plan is reasonably likely to be
confirmed within a reasonable time.
Title III--Restricting Executive Compensation Programs
Sec. 301. Executive Compensation Upon Exit From Bankruptcy.
Bankruptcy Code section 1129 specifies the criteria for
confirmation of a chapter 11 plan. Section 1129(a)(4), for
example, requires that certain services, costs and expenses
in connection with the case (or in connection with the plan
and incident to the case) to have either been approved by the
court (or subject to approval by the court) as reasonable.
Section 301 amends section 1129(a)(4) to add a requirement
that payments or other distributions under the plan to or for
the benefit of insiders, senior executive officers, and any
of the 20 next most highly compensated employees or
consultants providing services to the debtor may not be
approved unless: (1) such compensation is subject to review
under section 1129(a)(5), or (2) such compensation is
included as part of a program of payments or distributions
generally applicable to the debtor's employees and only to
the extent that the court determines that such payments are
not excessive or disproportionate as compared to
distributions to the debtor's nonmanagement workforce.
In addition, section 301 amends section 1129(a)(5), which
requires the plan proponent to disclose the identity and
affiliations of the debtor's officers and others, such as the
identity of any insider who will be employed or retained by
the reorganized debtor and such insider's compensation.
Section 301 amends section 1129(a)(5) to add a requirement
that such compensation must be approved (or subject to
approval) by the court in accordance with the following
criteria: (1) the compensation is reasonable when compared to
that paid to individuals holding comparable positions at
comparable companies in the same industry; and (2) the
compensation is not disproportionate in light of economic
concessions by the debtor's nonmanagement workforce during
the case.
Sec. 302. Limitations on Executive Compensation
Enhancements. In general, Bankruptcy Code Section 503(c)
prohibits a debtor from making certain payments to an
insider, absent certain findings by the court. Section 302
amends section 503(c)(1), which prohibits such payments when
they are intended to induce the insider to remain with the
debtor's business, in several respects. First, it expands the
provision so that it applies a debtor's senior executive
officer and any of the debtor's 20 next most highly
compensated employees or consultants. Second, it clarifies
that the provision prohibits the payment of performance or
incentive compensation, a bonus of any kind, and other
financial returns designed to replace or enhance incentive,
stock, or other compensation in effect prior to the
commencement of the case. And, third, it specifies that the
court's findings must be based on clear and convincing
evidence in the record.
In addition, section 302 also amends Bankruptcy Code
section 503(c)(3), which prohibits other transfers made or
obligations incurred outside of the debtor's ordinary course
of business and not justified by the facts and circumstances
of the case, including transfers made and obligations
incurred for the benefit of the debtor's officers, managers
or consultants hired postpetition. Section 302 replaces
section 503(c)(3) with a provision prohibiting other
transfers or obligations incurred to or for the benefit of
insiders, senior executive officers, managers or consultants
providing services to the debtor unless they meet certain
criteria. First, the court must find, based on clear and
convincing evidence (without deference to the debtor's
request for authorization to make such payments), that such
payments are essential to the survival of the debtor's
business or, in the case of a liquidation, essential to the
orderly liquidation of the debtor's business and maximization
of the value of the debtor's assets. Second, the services for
which compensation is sought must be essential in nature.
Third, such payments must be reasonable compared to
individuals holding comparable positions at comparable
companies in the same industry and not disproportionate in
light of economic concessions made by the debtor's
nonmanagement workforce during the case.
Sec. 303. Assumption of Executive Retirement Plans. Section
303 amends Bankruptcy Code section 365, which sets forth the
criteria pursuant to which executory contracts and unexpired
leases may be assumed and rejected, to add two provisions.
New subsection (q) provides that no deferred compensation
arrangement for the benefit of a debtor's insiders, senior
executive officers, or any of the 20 next most highly
compensated employees may be assumed if a defined benefit
pension plan for the debtor's employees has been terminated
pursuant to section 4041 or 4042 of ERISA on or after the
commencement of the case or within 180 days prior to the
commencement of the case.
New subsection (r) provides that no plan, fund, program, or
contract to provide retiree benefits for insiders, senior
executive officers, or any of the 20 next most highly
compensated employees of the debtor may be assumed if the
debtor: (1) has obtained relief under subsection (g) or (h)
of section 1114 to impose reductions in retiree benefits; (2)
has obtained relief under subsection (d) or (e) of section
1113 to impose reductions in the health benefits of the
debtor's active employees; or (3) or reduced or eliminated
active employee or retiree benefits within 180 days prior to
the commencement of the case.
Sec. 304. Recovery of Executive Compensation. Section 304
adds a new provision to the Bankruptcy Code. New section
563(a) provides that if a debtor reduces its contractual
obligations under a collective bargaining agreement pursuant
to section 1113(d), or retiree benefits pursuant to section
1114(g), then the court, as part of the order granting such
relief, must make certain determinations. The court must
determine the percentage of diminution in the value of the
obligations as a result of such relief. In making this
determination, the court must include any reduction in
benefits as a result of the termination pursuant to section
4041 or 4042 of ERISA of a defined benefit plan administered
by the debtor, or for which the debtor is a contributing
employer, effective at any time within 180 days prior to the
commencement of the case. The court may not take into
consideration pension benefits paid or payable under title IV
of ERISA as a result of such termination.
If a defined benefit pension plan administered by the
debtor, or for which the debtor is a contributing employer,
is terminated pursuant to section 4041 or 4042 of ERISA,
effective at any time within 180 days prior to the
commencement of the case, and the debtor has not obtained
relief under section 1113(d), or section 1114(g), new section
563(b) requires the court, on motion of a party in interest,
to determine the percentage in diminution in the value of
benefit obligations when compared to the total benefit
liabilities prior to such termination. The court may not take
into account pension benefits paid or payable pursuant to
title IV of ERISA as a result of such termination.
After such percentage diminution in value is determined,
new section 563(c) provides that the estate has a claim for
the return of the same percentage of the compensation paid,
directly or indirectly (including any transfer to a self-
settled trust or similar device, or to a nonqualified
deferred compensation plan under section 409A(d)(1) of the
Internal Revenue Code of 1986) to certain individuals. These
individuals include: (1) any officer of the debtor serving as
a member of the debtor's board of directors within the year
before the filing of the case; and (2) any individual serving
as chairman or as lead director of the board of directors at
the time when relief under section 1113 or section 1114 is
granted, or if no such relief has been granted, then the
termination of the defined benefit plan.
New section 563(d) provides that a trustee or committee
appointed pursuant to section 1102 may commence an action to
recover such claims. If neither commences such action by the
first date set for the confirmation hearing, any party in
interest may apply to the court for authority to recover such
claims for the benefit of the estate. The costs of recovery
must be borne by the estate.
New section 563(e) prohibits the court from awarding
postpetition compensation under section 503(c) or otherwise
to any person subject to the provisions of section 563(c) if
there is a reasonable likelihood that such compensation is
intended to reimburse or replace compensation recovered by
the estate pursuant to section 563.
Sec. 305. Preferential Compensation Transfer. Bankruptcy
Code section 547 authorizes preferential transfers to be
avoided. Section 305 adds a new subsection to section 547 to
permit the avoidance of a transfer to or for the benefit of
an insider (including an obligation incurred for the benefit
of an insider under an employment contract) made in
anticipation of bankruptcy. The provision also permits the
avoidance of a transfer made in anticipation of a bankruptcy
to a consultant who is formerly an insider and who is
retained to provide services to an entity that becomes a
debtor (including an obligation under a contract to provide
services to such entity or to a debtor) made or incurred
within one year before the filing of the bankruptcy case. In
addition, new section 547(j) provides that no provision of
section 547(c) (specifying certain exceptions to section 547)
may be utilized as a defense. Further, section 547(j) permits
the trustee or a committee to commence such avoidance action.
If neither do so as of the date of the commencement of the
confirmation hearing, any party in interest may apply to the
court for authority to recover the claims for the benefit of
the estate. The costs of recovery must be borne by the
estate.
Title IV--Other Provisions
Sec. 401. Union Proof of Claim. Section 401 amends
Bankruptcy Code section 501(a) to permit a labor organization
(in addition to a creditor or indenture trustee) to file a
proof of claim.
Sec. 402. Exception from Automatic Stay. Section 402 amends
Bankruptcy Code section 362(b) to create an additional
exception to the automatic stay with respect to the
commencement or continuation of a grievance, arbitration or
similar dispute resolution proceeding established by a
collective bargaining agreement that was or could have been
commenced against the debtor before the filing of the
bankruptcy case. The exception also applies to the payment or
enforcement of awards or settlements of such proceeding.
