National Bankruptcy Review Commission
First Organizational Meeting
Friday, October 20, 1995
Commission Members Present:
Mike Synar, Chairman
Jarilyn Dupont, Executive Director/General Counsel
Approximately 25 members of the general public and governmental agencies
attended including representatives from the U.S. Senate and House of
Representatives, the Department of Justice, the Administrative Office of the
U.S. Courts, trade associations, interest groups and the media.
Preliminary comments were made by the Chairman welcoming everyone. Each
Commission Member introduced her/himself and stated her/his background and
general expectations for the Commission. Chairman Synar indicated that he had
asked Judge Ginsberg to fill in for him when he was unable to attend
At 10:16 a.m., Chairman Synar called for the meeting to be closed and the
closed session continued until approximately 12:10 p.m.
The meeting was recessed for lunch and reconvened at 1:07 p.m. by Vice Chairman
Ginsberg (acting as Chairman in the absence of Chairman Synar).
Vice Chairman Ginsberg announced the decision taken during the closed session
and then moved on to the next agenda item, the approval of the Bylaws.
Discussion of Bylaws
He continued with an amendment to Bylaw II (Meetings and Hearings), section
(A), to add in the first sentence after the word Chair , the phrase or the
Vice Chair, if the Chair is unavailable . There was agreement with the
The third amendment by John Gose was to Bylaw III, (Quorum and Voting), section
(B). He suggested that the whole Commission might want to determine if there
would be a lesser quorum for the purpose of holding hearings. After discussion
by the Members as to how hearings would be handled, however, it was agreed that
this section should remain unamended.
Judge Jones suggested that Bylaw IV (Administrative Authority), section (A),
should be amended by striking the last sentence. There was discussion as to
the authority of the Chair to fix the compensation level of personnel and
whether the statute permitted the action. Jay Alix suggested that instead of
striking the sentence simply change the word Chair to Commission in the
last sentence. Vice Chairman Ginsberg suggested that the entire section (A) be
stricken since the Commission could rely on the implementing statute. That
suggestion was agreed to by the Commission.
Babette Ceccotti posed a question relating to Bylaw II (Meetings and Hearings),
section (A), as to the last sentence of section (A) and whether the time
period was necessary to comply with statutory notice or was for personal notice
to the Members. Executive Director Dupont explained that the notice would be
sent to the Members subsequent to discussion with the Commission Members of a
suitable and convenient date and it was a confirmation of the meeting date
before any other public notice date. With that understanding no change was
made to the section.
Babette Ceccotti raised a question on Bylaw III (Quorum and Voting), section
(C), concerning the presence of a Member at a meeting through the use of a
telephone. After an intervening discussion of another issue, it was agreed
that a Member was present if participating by telephone and that the section
would be amended by adding the phrase either in person or by telephone in the
second sentence after the word present .
Caldwell Butler suggested that Bylaw III (Quorum and Voting), section (C), be
amended to strike proxy voting as indicated in the last two sentences of
section (C). This amendment was agreed to by the Members
John Gose raised a question as to Bylaw IV (Administrative Authority), section
(C), as to who is a designee as the term is used throughout the section. Vice
Chairman Ginsberg indicated it was whoever was designated by the Chairman. A
question was then raised as to the availability of reports indicating
expenditures by the Commission. It was explained that the monthly budget
reports would be provided by the General Services Administration (GSA) starting
with the date of the official agreement with GSA so that the first one probably
would be available at the end of October. It was requested that these be
circulated to the Members.
John Gose proposed an amendment to Bylaw IV (Administrative Authority), section
(D), that the amount not requiring approval of the Commission for consultants
be set at $5,000 instead of $10,000 because of the short budget cycle in Fiscal
Year 1997. Vice Chairman Ginsberg suggested the amount be set at $7,500 and it
was agreed to by the Members.
Babette Ceccotti proposed that Bylaw IV (Administrative Authority), section
(C), should include expense reimbursement in addition to travel . This was
agreed to by the Members.
Judge Jones raised several questions as to Bylaw V (Travel and Representation
by Commission Members), section (A). Discussion was held on the matter of
Commission Members speaking at functions either on behalf of the Commission or
as individuals. Vice Chairman Ginsberg noted that as long as the Member was
not seeking reimbursement from the Commission, section (B) allowed the Member
to speak as s/he wished. John Gose suggested that even if the Member spoke
individually it would be a good idea to inform the Chair or Vice-Chair. Vice
Chairman Ginsberg agreed, indicating each Member should make an effort to keep
the Executive Director or Chair informed of meetings at which the Member spoke.
Judge Jones suggested that the last sentence of section (B) concerning approval
was redundant. After discussion, it was agreed that these sentences belonged
in section (A) and that the 10 day notice should be in (A), subject to waiver
by the Chair.
Judge Jones suggested that each Member who spoke at a meetings should do a
short memo on the speech and circulate it to the other Members. Vice Chairman
Ginsberg suggested that a draft bylaw should be circulated so that any Member
who spoke on behalf of the Commission would do a report. John Gose said it
should also apply to speeches as individuals. Discussion ensued as to whether
the Commission could require that of the Members. Jay Alix indicated he felt
that for groups he spoke to as an individual before appointment to the
Commission, and continued to speak to, he should not have to account to the
Commission for these meetings. Judge Jones suggested that Members could do it
informally such as through a message on e-mail. Jay Alix also questioned
whether all the Members would feel comfortable with one person speaking for the
Commission and whether there should be some guidelines to assist the
Commissioners. It was agreed that Bylaw V (Travel and Representation by
Commission Members) would be redrafted to work in guidelines including a good
faith requirement suggested by Jim Shepard.
John Gose raised an question concerning Bylaw VI (Travel and Representation by
Commission Staff), section (A) as to whether designee should be stricken and
Vice Chair substituted. After discussion on the coverage of this section and
the type of meetings it included, it was agreed that this Bylaw would be
Caldwell Butler suggested an amendment to Bylaw VII (Ethical Requirements for
Commission Members and Staff), section (A), to insert in the second sentence
after the phrase special government employees the phrase except legislative
appointees shall not be required to comply with the financial disclosure
requirements . This was seconded by John Gose and approved by the Members.
John Gose raised a question as to Bylaw VIII (Amendments to Bylaws) as to why the notice period was 21 days and not 30 days. After discussion as to the need for time to be aware of the agenda and time for notice to the Federal Register, it was agreed that the Bylaw would be amended to strike 21 days and insert 15 days or such lesser time as the Commission may set in the first sentence.
Judge Jones proposed that Bylaw IX (Parliamentary Procedure) be stricken as
there was no need to use Roberts Rules of Order. After discussion of the
procedure to use and agreement to try doing without specific rules for a time,
it was agreed that Bylaw IX was to be stricken.
Vice Chairman Ginsberg made a motion to approve the bylaws as amended except
for those agreed to be redrafted (Bylaw V and Bylaw VI). This was seconded and
Caldwell Butler made a motion to move the amount allocated for a deputy counsel
position to the categories for travel, meetings and consultants to increase
these amounts. The motion was seconded and discussion was held on the motion.
Vice Chairman Ginsberg suggested that the motion be postponed until the next
meeting to allow the Executive Director to provide the rationale for the deputy
counsel position and to provide job descriptions. After further discussion, on
the relationship of the timline and budget, it was agreed that the issue and
motion be deferred until the afternoon. Further discussion was held on costs
including the cost of court reporters and the cost of services from the GSA.
Vice Chairman Ginsberg suggested that approval of the entire budget be deferred
until later in the afternoon and this suggestion was accepted.
Jay Alix raised the issue of the lack of funds allocated for the Commission and
the possibility of seeking funds from other sources. He suggested that he
start an active effort to get funding or in-kind support. Vice Chairman
Ginsberg accepted it as a motion and it was seconded by Jim Shepard. Jim
Shepard raised the problem of groups unable to assist in funding a meeting and
the fact that those groups needed to be included in the Commissions
consideration and meetings. Jay Alix agreed he would gather the information
only and not commit the Commission to any action until the Commission could
consider the information and potential offers of assistance. The motion was
approved by the Commission.
Vice Chairman Ginsberg moved to the next agenda item, the consultant contract
with Professor Elizabeth Warren. Babette Ceccotti made a motion to enter into
a consultant contract with Professor Warren which was seconded by Jay Alix.
Discussion on the contract commenced with Professor Warren joining the
Commissioners to answer questions concerning her experience, her role with the
Commission and the terms of the consulting contract. Professor Warren
described her role for the Commission as promoting discussion on the issues for
the Commission to consider, assist in focussing the Commission and bringing the
information on the issues to the Commission. The ultimate responsibility would
be to ensure that the final report was the best possible report that could be
John Gose raised questions concerning Professor Warrens position on
Chapter 11 bankruptcies and her critical analysis of the proposals. Jim
Shepard raised questions concerning whether she could work with tax experts and
others in a field not considered her expertise. Professor Warren assured the
Commission that she could. Judge Jones raised questions regarding her
abilities with respect to draft legislation and the individuals she would
consult with in proceeding with Commission work. Professor Warren provided
the names of a number of experts she had talked with on a preliminary basis and
a number of individuals and experts she anticipated working with if the
contract was approved. Discussion also was had concerning her role in advising
the Commission on matters she disagreed with and her ability to bring in
experts in various areas to work with her as well as law clerks and interns.
She noted her experience as a Reporter for the National Bankruptcy Conference
and her work for the Conference concerning Chapter 11 noting that she does not
agree with all of the conclusions in that report. She noted that her view was
that the ultimate power lay with the Commission to decide what was in the
report or not in the report. She indicated that she would inform the
Commission if she disagreed so that the Members could consider the position.
Jay Alix raised a number of technical questions with respect to the contract
and requested that some additions and changes to the contract be made. These
included the fact that the Commission was her client; a provision for
termination by either party; expand the definition of the work product;
confidentiality of private conversations, circulations of materials. It was
also agreed that Professor Warren would endeavor to inform the Commission if
other projects on which she was working were in conflict with Commission
proposals for the Commission. Professor Warren also agreed she would provide a
disclaimer in which she would indicate that she is not necessarily representing
the Commissions views with respect to any speeches or article she gives
or writes during her work as the Reporter/Advisor.
The Commission Members approved a motion to approve Professor Warrens
consulting contract with the amendments agreed to by the Members. The meeting
was recessed at 3:16 p.m. and reconvened at 3:36 p.m.
Workplan for the Commission
Vice Chairman Ginsberg requested that the next agenda item for discussion
should be the workplan for the Commission. He suggested that since the range
and amount of work would affect the timeline it would be best to first get
started on the workplan. Initial discussion concerned the scope of the
Commissions responsibilities and just how broad a review was anticipated
under the statutes. The consensus was the scope was the entire code and other
items affecting the code. Vice Chairman Ginsberg then suggested that Professor
Warren would help in suggesting issues and idea.
Professor Warren began by providing some background information concerning
bankruptcies. The number of bankruptcies in 1994 were 832, 829 of which
non-business filings were 93.7%; business filings were 6.3% of all filings; 70%
of the business filings were in Chapter 7 and Chapter 11 filings were about
1.5% of all filings. There has been a generally upward trend in bankruptcy
filings since 1984 with a dip in 1993 and 1994. Business filings alone peaked
in 1987 and has been on a downward trend since then. Chapter 11 cases, since a
peak in 1986, are down by 40%. Publicly traded companies constitute one one
hundreth of one percent (.001%) of all bankruptcy filings. In 1994, 70
publicly traded companies filed for Chapter 11. These filings are down 53%
since a peak in 1986. Public Chapter 11 filings in 1994 involved a total of
8.336 billion dollars in assets. The average public company in bankruptcy in
Chapter 11, in 1994, had assets of 250 million dollars. These assets, however,
are down by 90% since 1990.
Discussion ensued as to the import of the statistics. John Gose wanted to know
whether the statistics indicated the relative importance of the issues. Jay
Alix believed that the statistics indicated that the bankruptcy system affected
a lot of lives but also queried whether the Chapter 11 statistics were an
anomaly because of the big LBOs going in and out of the system in the
1980s with large amounts of assets. Professor Warren stated she wanted the
statistics to show the diversity of a system that handles both a company such
as LTV Steel and a single consumer Mary Smith and the fact that the Commission
did have to be careful in analyzing the data. Judge Jones indicated that
Chapter 11 could not be minimized because that formed the backdrop for any
Professor Warren the suggested that the system be looked at from the
perspective of different categories or baskets. She identified several:
consumers, small business, small business, big business. Jim Shepard suggested
government since it is a participant in almost every bankruptcy. Vice Chairman
Ginsberg suggested that the effort was to identify user groups and government
was a creditor. Agriculture was included as a user group.
John Gose raised the question of international impact and Vice Chairman
Ginsberg identified the issue as transnational. Professor Warren identified a
new category as procedure and put transnational in that category. Under
procedure, the Members provided suggestions to include such issues as the
structure of the courts (Article I versus Article III), workload distribution;
access to the courts; is it too expensive for all involved; and, user fees. It
was then suggested that these issues were the debtor issues and creditor issues
should be explored more.
Creditors were identified as a category or basket and Members suggested
different groups. Involuntary creditors such as employees and other unsecured
creditors were mentioned. Jay Alix suggested that these were too broad since,
for example, under the category of unsecured creditors, there are financial
creditors with financial instruments such as bond holders and there are trade
creditors. Employees include both those represented by collective bargaining
agreements and those not so represented. Caldwell Butler suggested tort
victims were unsecured creditors. Ex-employees and retirees were added. Some
discussion was had as to whether to add executory contracts or simply add
landlords as claimants.
Cost was raised as an issue and discussion was had as to whether this meant
something different between consumer and business bankruptcies. Jay Alix
pointed out that fees, as a percentage of assets, were lower in large business
bankruptcies than small business bankruptcies. John Gose raised delay as a
cost. Jim Shepard mentioned resources lost in litigation, including court
fees, lawyers fees, accountants fees, consultants fees and
appraisers fees. Judge Jones felt that the problem was that the
bankruptcy system had become too adversarial as compared to before 1978 and
that the complexity of the Bankruptcy Code led to part of the problem. Judge
Jones also noted the differing exemptions in the nation and suggested that all
exemptions perhaps should be federalized.
Professor Warren led the discussion back to the groups identified and asked the
Members to detail the problems associated with these particular groups.
Starting with consumer bankruptcies, she suggested the issue raised by Judge
Jones concerning exemptions. John Gose raised the issue of the U.S. Trustee
and the oversight of Chapter 13 Trustees and whether the Chapter 13 Trustees
were cost effective since they are self-supporting in terms of the assets they
deal with in bankruptcy. These were considered to be procedural problems. A
question was raised by Judge Jones as to the number of no-assets Chapter 7
cases. Professor Warren indicated she knew of one particular study from
Richmond, Virginia which indicated that in that district that 94% of all
Chapter 7s were no assets.
Babette Ceccotti questioned whether the premise for the discussion should be
that the Commission assume that the result is to make the system easier for all
of the users identified. Professor Warren agreed that such a question had to
be considered since the present system had created a situation in which a
bankruptcy case, depending on where it was filed, could produce markedly
different results. Jeffrey Hartley pointed out that forum shopping also leads
to abuse. Vice Chairman Ginsberg raised the problem of special interest
additions since the 1978 Act noting that there were originally 6
non-dischargeable debts and now there were 17 or 18 which effectively denied
Chapter 7 to certain groups of filers.
Serial filing and fraudulent filings were raised as issues by Jim Shepard. A
discussion ensued as to the definition and scope of fraudulent filings. Trying
to determine when it a filing is a bad faith or a fraudulent filing was raised
as problem. Filing to stop foreclosure was mentioned and Professor Warren
pointed out that such filings are common for a large number of filers under
several chapters but does that constitute fraud? The problem in California
identified with numerous filings to stop evictions was discussed as well as
tag team filings by family members. Vice Chairman Ginsberg noted that his
district had a number of filings with addresses in California. He raised the
question of whether the bankruptcy system should be responsible or should the
criminal law system be responsible for such fraud in the bankruptcy system.
Jay Alix pointed out that often the filing itself was not a fraud but a tool in
a larger fraud scheme. Vice Chairman Ginsberg noted the 1994 amendments
solution to the problem of involving petition preparers petition preparers
involved in fraudulent filings was to make the actions subject to criminal
penalties under Title 18 and not leave the solution to the bankruptcy courts.
Judge Jones suggested another solution might be to suspend the effectiveness of
the stay until there is proof that the debtor is legitimate.
The problem of persons filing under correct names but hiding assets and the
lack of follow-up was raised. Discussion of the issue indicated that certain
creditors concluded that it is not worth the expense or time for the creditor
to pursue a claim or suit because the pursuit would outweigh the benefit.
Babette Ceccotti raised a question about the level of creditor participation in
consumer bankruptcy. Vice Chairman Ginsberg indicated that such participation
was virtually non-existent. The presumption is that a creditor who is
sufficiently interested will seek a lift from a stay and when there is a
determination of whether a Chapter 13 plan is feasible, the stay should be
lifted. In Chapter 7, there are no committees since there is no provision to
pay the committee any fees. Jeffrey Hartley suggested that the burden of proof
maybe should shift a bit to put the burden back on the debtor. Jim Shepard
indicated that the issue of the stay should be looked at since it is a very
powerful tool in bankruptcy proceedings.
The issue of variability in the system was raised and discussed. The variance
in exemptions among States was noted as well as the variance in procedure. For
example, debtors in the Middle District of Tennessee have a greater chance of
being in Chapter 13 than debtors in the Middle District of Illinois. Vice
Chairman Ginsberg noted that there was great deal of variety in what he termed
the common law of Chapter 13. -- the amount of attorneys fees, the
percentage the debtor must pay, the time to cure a default. These factors
influence the choices made in each district. Judge Jones raised the study from
the FJC (Federal Judicial Center) about the percentage of dismissals in Chapter
13. The figure was stated to be about 66% are dismissed -- a 30 to 40% success
rate. Jim Shepard stated he believed that Chapter 13s should be encouraged as
there is a fast rate return to the economy and creditors have approved.
Jeffrey Hartley noted that the lack of uniformity among districts also raises
the issue of stare decisis. Vice Chairman Ginsberg stated that it also raised
a constitutional question as to the original intent for a uniform system.
Jeffrey Hartley indicated that it should be raised in the context of the
appeals process and particularly how it applies to Chapter 13 since very few
Chapter 13 debtors will be able to appeal cases because of the cost.
Judge Jones raised the issue that the most represented creditors in consumer
bankruptcies are taxing authorities and credit card companies. Professor
Warren indicate it also probably included mortgage lenders as about 50% of
debtors are homeowners
Discussion then centered on how to divide large bankruptcies. Vice Chairman
Ginsberg suggested an historical viewpoint of equity owners identical with
management versus large business where equity is separated from management. He
also queried whether it would be appropriate to think of a system where small
businesses and small business debtors were equated in Chapter 13 terms. A
dollar separation was considered too difficult since the system could have
owner operated businesses with over 100 million dollars in assets and public
companies with only 10 million dollars assets.
The effort was to determine if there are the same problems for small businesses
as they are for large businesses. Judge Jones suggested that the possibility
of reorganization should be the dividing line. John Gose suggested that for
both groups the issues of cost, delay and complexity were relevant. A common
criticism is that the system does not render to creditors what should be
rendered. Jim Shepard indicated he believed the system was a form of
employment for an entire industry, given the industry that has grown up around
Professor Warren suggested that the effort was to identify specific problems in
the areas and groups mentioned. John Gose said the system was not serving
either the debtor or creditor well because of the delay in procedure. Vice
Chairman Ginsberg queried the scope of procedure and whether it encompassed the
overall system. Judge Jones stated she believed that the things that cause
delay in business bankruptcy are the stay, the extension of exclusivity,
fighting over ordinary course of business, fighting over fees and the plan
process often takes too long. Vice Chairman Ginsberg believed that there were
areas in the 1978 Code that were anticipated to be decided by adversarial
process and others that were not, but that other areas have developed a
different impact on the process. Voting for the confirmation plan was
considered a problem because many creditors do not bother with the notices and
time is spent trying to recontact creditors. A phenomenon in Chapter 7 was the
effort to get people to cash the checks distributed. Given the time and money
involved in the effort to track down these people, the checks are eventually
canceled and the funds deposited to the U.S. Treasury.
Judge Jones stated that these were problems given the magnitude of the system.
Additional costs are built into credit costs and there is also a systematic
cost. Judge Jones stated that the cost of administering cases is a cost that
could be pared down.
Professor Warren questioned whether the issue was a problem for small business
bankruptcy -- if the creditors are uninterested does that constitute a
problem? The discussion continued with questions of small Chapter 11's
obtaining discharges and re-opening under a new name. Judge Jones suggested
that if the debtor was not able to file in Chapter 11, state law remedies could
be pursued. Jim Shepard suggested there also was a perceived lack of value in
pursuing the cases because of the roadblocks. Jay Alix stated he believed the
Code was devoid of any discussion about the economic value of how creditors are
treated and how preferences are treated. The question was just how economic
was it for the creditor to pursue the claim if they had to hire a lawyer and
was this cost simply the price of having a bankruptcy system? There was
discussion of whether small business Chapter 11s should be treated in the same
manner as Chapter 13s.
The discussion then centered around additional issues to consider. Jay Alix
mentioned utilities and the potential problems with the effort to deregulate
the industry and possible resulting bankruptcies. Jeffrey Hartley tied the
discussion in to the possible problems arising under Chapter 9 bankruptcies
because of the connection with utilities and municipal ownership. Insurance,
as a potential issue for the Commission to consider, was raised and Judge Jones
indicated this should not be considered because of McCarran-Ferguson and
because insurance companies were regulated by state regulatory agencies. Jay
Alix pointed out that utilities are regulated by public rate commissions.
Banks also were mentioned as a potential issue for discussion. Judge Jones
indicated that the case for expansion of bankruptcy jurisdiction would have to
be made before such expansion into areas such as insurance. Jeffrey Hartley
pointed out that in a number of areas it was possible that Congress wanted the
Commission to look ahead to determine what future problems may arise.
Babette Ceccotti noted that overall issue was the interaction of bankruptcy
with other federal laws. Environmental issues and pensions were two areas
mentioned. The problem in the environmental area is one of trustee liability
and how these obligations under federal laws fit in with notions under
bankruptcy law such as claims and dischargeability. Jim Shepard noted that
similar conflicts occur with tax liability. While there are civil and criminal
penalties under state law for failure to pay taxes, the federal bankruptcy law
can release the obligation.
Professor Warren then asked for a discussion of specific cases and issues.
Babette Ceccotti raised labor law obligations, collective bargaining agreements
and obligations for retiree health benefits. Pension and ERISA obligations
also are concerns. Originally, the notion was that these relationships existed
outside of bankruptcy and now bankruptcy changes these relationships. Sections
1113 and 1114 were cited as attempts to deal with these issues. Professor
Warren questioned whether or how sections 1113 and 1114 have answered the
problems or have these sections created greater problems. Babette Ceccotti
noted that under the system the employer has more ability to change employee
contracts than the employees and have new conditions imposed on the employee
groups. The problem was considered to be a balance of power issue -- too much
in the hands of the debtor -- too little in the hands of organized labor -- and
perhaps too much power in the courts. John Gose framed the question as a
whether it is good for the body politic to be proceeding in this manner or is
it not good. Unorganized employees also were mentioned as having even a more
difficult time in bankruptcy proceedings since these employees had no
representations did union employees.
Jim Shepard brought up a problem with environmental claims in that the public
interest was not represented in bankruptcy. Professor Warren asked whether the
problem should be defined as debtors walking away from the problem or a problem
of the cleanup costs outweighing the value of the asset. The discharge of the
individual debtors liability was considered to be the problem.
The meeting was then concluded at 5:42 p.m. to be continued in New Orleans on
Wednesday November 1, 1995 at 9:00 a.m.