Mr. Chairman, I rise to plead for our Nation's family farmers and family fishing operations. And some people may ask why the representative from Manhattan and Brooklyn is rising to plead for family farmers. When I was a child, we had a…
Mr. Chairman, I rise to plead for our Nation's family farmers and family fishing operations. And some people may ask why the representative from Manhattan and Brooklyn is rising to plead for family farmers. When I was a child, we had a family farm which we lost to foreclosure because of policies similar to what the majority party is urging on us today. This is the 11th time we have been here to debate a temporary extension of chapter 12. To string farmers along, especially in these very hard times, is simply unconscionable; but this is even worse. Instead of passing this bill last year, the chapter 12 extension bill, when we could have sent it directly to the President, the majority refused to act and allow chapter 12 to sunset. Even now they refuse to act and instead are using family farmers again to try to pass an overall bankruptcy bill that is not going to pass again because the Senate will not go along with it; so they are just using it as a charade and putting at risk all the farmers. But a bill that should not pass anyway. A bill whose main and essentially only effect is to enable the big banks and the credit card companies to reach their hands into the pockets of low- and middle-income people who, because usually of either a divorce or being laid off from their jobs or health emergency, are in bankruptcy and at that time to enable the big banks and the credit card companies to put their hands into these low- and middle- income pockets and take more money out of it for the big banks and the credit card companies in 60 or 70 different ways. That is what this bill does. And this bill is a lot more important, the majority would have us believe, than extending chapter 12 for the benefits of family farmers and family fishing operators.
Even if we pass this bill as amended by putting on the entire bankruptcy reform bill, so-called, on the back of the chapter 12 extension, and even if the Senate agrees to allow the House to circumvent them entirely, family farmers would still have to sit and wait while Congress fiddles.
We do have another choice. We could reject this maneuver entirely and send the 6-month extension to the President today. We could adopt the gentlewoman from Wisconsin's (Ms. Baldwin) substitute and enact a part of this bill that is both uncontroversial and necessary immediately to make chapter 12 permanent and update it to provide needed relief. But the Republican leadership appears unwilling to do either. They appear intent on using the plight of family farmers yet again to advance the agenda of the credit industry and to do so by threatening and hurting the family farmers by engaging in a legislative maneuver that has already resulted in chapter 12's expiring and that they know will now result in its being allowed to lapse further.
This is simply wrong. I urge my colleagues to reject this outrageous stunt. This bill has been on the verge of passing ``any minute'' since 1997. How much longer must our farmers and fishermen and women wait? They have waited long enough. I urge my colleagues to support the gentlewoman from Wisconsin and save our family farms and stop using the plight of the family farmers to try to put the entire agenda of the banks and the credit card companies on the backs of the family farmers. Pass a family farm bill; then bring in a bankruptcy bill. We will debate it on the merits or demerits of that, I would say the demerits; but stop trying to put that entire burden on the family farmers' backs because their backs are already broken.
Mr. Chairman, I think the gentleman from Utah (Mr. Cannon) misunderstands the question of the gentleman from Virginia (Mr. Scott). The question as I understand it was not if someone owes $2 million and can pay $10,000 should be then forced to pay $10,000. Yes. The question was, is it not true that under this bill if he owes $2 million, can afford to pay only $10,000, he can never get relief even if he pays the $10,000 he can afford to.
I yield to the gentleman from Utah.
Mr. Speaker, I offer a motion to instruct.
Mr. Speaker, I yield myself such time as I may consume. I anticipate that this debate on this motion to instruct will take only a small fraction of the time allotted to it.
Mr. Speaker, this motion would instruct the conferees to strike section 414 of the bill. Section 414 would repeal important protections in the Bankruptcy Code against conflicts of interest on the part of investment bankers involved in the reorganization of a bankrupt company.
Section 414 would relieve investment bankers of the duty of being disinterested persons before they can be retained as professionals by the bankruptcy trustee. This disinterestedness standard has been in the code since 1938. It protects the estate from conflicts of interest by professionals in the case.
Mr. Speaker, many, many people who support this bill, which I do not, are opposed to this provision and support this motion to instruct. Judge Edith Jones of the U.S. Court of Appeals for the Fifth Circuit, a very conservative judge who is a member of the Bankruptcy Reform Commission and supports the bill, has written: ``Such a standard can alone protect integrity in the bankruptcy process. If professionals who have previously been associated with a debtor continue to work for the debtor during a bankruptcy case, they will often be subject to conflicting loyalties that undermine their foremost fiduciary duty to the creditors. Strict disinterestedness required by current law eliminates such conflicts or potential conflicts. Section 414, in removing the rigorous standard of disinterestedness, is out of character with the rest of this important legislation, however, and it should be eliminated.''
Mr. Speaker, that letter is as follows:
United States Court of Appeals,
Fifth Circuit,
Houston, TX, March 11, 2003.
Hon. F. James Sensenbrenner, Jr.,
Chairman, House Committee on the Judiciary, Rayburn House
Office Building, Washington, DC.
Dear Mr. Chairman: I understand that the House Committee on
the Judiciary will consider H.R. 975, bankruptcy reform
legislation, on the morning of March 11, 2003. I also
understand that the Committee may consider whether or not to
retain Section 414 of the bill, which would amend the
``disinterested person'' standard codified at 11 U.S.C.
Sec. 101(14). As a former member of the National Bankruptcy
Review Commission and, in that capacity, a consistent
advocate of maintaining strict disinterestedness standards
for bankruptcy professionals, I urge the Committee not to
change existing law. I support Congressman Bachus's effort to
remove Section 414.
The National Bankruptcy Review Commission was asked to
recommend a modification of the disinterestedness standard in
order to accommodate, as I recall, the geographic growth and
increasing sophistication of professional firms of all kinds
involved in Chapter 11 bankruptcvy practice. Despite fervent
lobbying by prominent bankruptcy professionals and scholars,
the Commission resisted making such a recommendation. We
voted (by a lopsided majority, I believe) to retain the
standard as it has existed since the 1930's.
The Commission report cites two reasons for retaining a
strict prophylactic standard for all bankruptcy
professionals. These are worth brief restatement. First, such
a standard can alone protect integrity in the bankruptcy
process. If professionals who have previously been associated
with the debtor continue to work for the debtor during a
bankruptcy case, they will often be subject to conflicting
loyalties that undermine their foremost fiduciary duty to
the creditors. Strict disinterestedness, required by
current law, eliminates such conflicts or potential
conflicts.
Second, enforcing a strict standard of disinterestedness is
necessary to maintain public confidence in the integrity of
the bankruptcy system. A bankruptcy case should not be
subject to the criticism that professional fees are generated
to no purpose or for a bad purpose such as delay. The courts'
efforts to ensure that fees remain reasonable are enhanced
when, because of the complete disinterestedness of
participating professionals, no hidden motives may be imputed
to the actors in the case.
One need not focus solely on today's high-profile
bankruptcy cases to realize that the challenge of maintaining
disinterested professional services has permeated modern
corporate reorganization law. The Commission, for instance,
voted to retain the original standard in the wake of the
criminal conviction of a prominent bankruptcy lawyer and
several well-known instances in which law firms were required
to disgorge part of their fees--all for violating
disinterestedness standards. Given the ongoing nature of the
problem, I do not see how any professional group can
advocate, consistent with the public interest, eliminating
the statutory requirement of disinterestedness. Moreover, as
it appears likely that many future complex bankruptcy cases
will arise in which the role of investment bankers will have
to be explored, it seems particularly unwise to grant that
group--alone among bankruptcy professionals--a status
insulated from the strict disinterestedness requirement.
Since the close of the Commission's work in October 1997, I
have been a proponent of the bankruptcy reform legislation
that has been repeatedly passed by Congress. I still believe
the bankruptcy reform legislation is essential to restoring
integrity to personal and business bankruptcies, redressing
the imbalances and opportunities for manipulation that plague
current law, and encouraging individual responsibility in
financial affairs. Section 414, in removing investment
bankers from a rigorous standard of disinterestedness, is out
of character with the rest of this important legislation,
however, and it should be eliminated.
Very truly yours,
Edith H. Jones.
Mr. Speaker, why are we voting on this technical issue? Because, Mr. Speaker, it has significant real-world consequences for employees, retirees, shareholders, and creditors of a bankrupt company. Current law prevents an investment banker who had been part of the financial affairs, and perhaps of the problems, of a bankrupt company from being responsible during the bankruptcy for advising, organizing, and overseeing the reorganization.
Anyone who has read a newspaper in the last few years cannot fail to understand the importance of this motion. This deals with conflicts of interest. Conflicts of interest among investment bankers, accountants, management, and other insiders have been at the heart of the most outrageous corporate scandals that have ended up in bankruptcy court, which have been in the headlines in our front pages in the last few years.
Perhaps when this provision was first proposed several years ago, some Members may have thought it was a minor technical change. No one any longer can believe for a moment after everything that has happened that this is just a small benign change.
The chairman of the Securities and Exchange Commission, William Donaldson, has written to Senators Leahy and Sarbanes in opposition to this provision. The former chairman of the Securities and Exchange Commission, Arthur Levin, has written to us in opposition to this provision.
Mr. Speaker, that letter is as follows:
U.S. Securities and
Exchange Commission,
Washington, DC, May 22, 2003.
Hon. Patrick J. Leahy,
U.S. Senate, Russell Senate Office Building, Washington, DC.
Hon. Paul S. Sarbanes,
U.S. Senate, Hart Senate Office Building, Washington, DC.
Dear Senators Leahy and Sarbanes: Thank you for requesting
the Commission's views on Section 414 of H.R. 975, which
would amend the ``disinterested person'' definition in the
conflict of interest standards of the Bankruptcy Code to
remove the specific provisions covering investment bankers.
On May 7, in response to a question from Senator Sarbanes at
a hearing of the Senate Committee on Banking Housing and
Urban Affairs on the Impact of the Global Settlement, I
expressed my personal views about this amendment. Now I am
pleased to convey the view of the Commission, which is that,
while it may be possible to draft language that would address
some of the concerns of the proponents of the amendment,
Congress should proceed very cautiously before loosening any
conflicts of interest restriction. While we recognize that
this one-size-fits-all statutory exclusion is controversial,
we believe that it would be a mistake to eliminate the
exclusion in a similar one-size-fits-all manner at a time
when investor confidence is fragile.
The current ``disinterested person'' requirement was
adopted at least in part in response to a 1938 study by the
Securities and Exchange Commission that provided extensive
documentation and analysis of abuses in corporate
reorganization. The study concluded that a firm that served
as underwriter for a company's securities should not advise
the company about distributions to those security holders in
a reorganization plan. It further found that such a firm
should not advise the company about potential claims against
those involved with the company prior to the bankruptcy since
this often would involve an assessment of transaction in
which the firm participated. However, we should note that in
the 65 years since the 1938 study was issued, bankruptcy
practices and procedures have improved significantly with the
addition of a dedicated bankruptcy judicial system, the
establishment of the U.S. Trustee's office, and the
strengthening of active creditors' committees.
We are aware of the arguments of proponents of the
amendment that the current statutory exclusion is too broad
because it covers firms that participated in any underwriting
of the debtor, even if it was years ago and the firm has had
no further involvement with the debtor. However, if the
exclusion is eliminated entirely, we are concerned that the
general protection in the statute--which relies on the judge,
at the outset of the proceedings, to forbid those with
materially adverse interests to the estate, its creditors, or
its equity security holders from advising a company in
bankruptcy--may well be insufficient.
We appreciate the opportunity to comment on this proposed
amendment. If you or your staff need any further information,
please contact my office.
Sincerely,
William H. Donaldson,
Chairman.
Mr. Speaker, I yield myself such time as I may consume.
I have two basic comments. First, in response to the comments of my distinguished colleague from New York, it is not the case that anyone who worked as an investment banker for the banker company 50 years ago is affected by this provision.
If you actually read the provision in the statute book, a disinterested person is defined as a number of things, but it says the following: ``Was not an investment banker for any outstanding security of the debtor.'' If it is still outstanding, then he has still got a relationship and he still has an interest in that. ``Has not been, within 3 years before the date of the finding of the petition, an investment banker,'' et cetera. So in other words, it is a 3-year bar for outstanding securities. So the situation we were told about a moment ago does not apply.
Let me say that this is not a question of discretion; it is a question of protection. And, again, all the professionals in the field, everyone to whom we ought to be looking for guidance in this comes to the same conclusion. I do not claim to be an expert in investment banking or bankruptcy law, but everyone who is basically says the same thing.
I am going to read three quotes and that will be that. This is from the senior professor at Harvard Law School, an expert on bankruptcy, Elizabeth Warren: ``There is a reason why the professionals who have worked for a business that collapses into bankruptcy are not permitted to stay on.
``The company must go back after bankruptcy and examine its old transactions. Having the same professionals review their own work is not likely to yield the most searching inquiry.''
Arthur Levitt, former Chairman of the Securities and Exchange Commission: ``I haven't read a single argument made by the investment banks that would persuade me that that prohibition should be changed. What we are talking about is a significant potential conflict of interest, and I think it is outrageous that investment banks would even try to go down that road.''
William Donaldson, the current Chairman of the Securities and Exchange Commission: ``We are aware of the arguments of proponents of the amendment that the current statutory exclusion is too broad because it covers firms that participated in any underwriting by the debtor, even if it was years ago, and the firm has had no further involvement with the debtor. However, if the exclusion is eliminated entirely,'' which is what this provision does, ``we are concerned that the general protection in the statute, which relies on the judge at the outset of the proceedings to forbid those with materially adverse interest to the estate, its creditors or its equity and security holders from advising a company in bankruptcy may well be insufficient.''
So there is a unanimity of judgment among the people involved in protecting shareholders and stakeholders and 401(k)s and employees and everybody else with a stake in this matter. We should not do this. And just one further observation. This has been the law since 1938. We have had no problems with it. We have no great hordes of people coming to our offices saying, Get rid of this. It has caused all kind of problems. Leave it alone.
Vote for the motion to recommit.
Mr. Chairman, I yield back the balance of my time.
Mr. SPEAKER pro tempore (Mr. Simpson). Without objection, the previous question is ordered on the motion to instruct.
Mr. Speaker, on that I demand the yeas and nays.