American Bankruptcy Institute | Government: Chapter 9

The following abstract summarizes the text of submissions made to the National Bankruptcy Review Commission. The abstract is organized by NBRC working group and topic.

The Final Report of the NBRC can be viewed on-line. To obtain a copy of any document shown below, contact the Center for Legislative Archives, Room 205, National Archives Building, Washington, D.C. 20408. The telephone number is 202/501-5350. Mr. R. Michael McReynolds, Deputy Director, will be able to assist with specific inquiries. (The NBRC documents will be housed at this location until June, 1999. Thereafter, the records will be transferred to the Center's archives in College Park, MD.)

**Government: Chapter 9**
ID	Name	Group	Code Sec	Cross Ref	Problem Referenced	Proposed Solutions
NBRC- 0003	Dean Pope, Peter Kornman & Steve Stern		109c	101	Since municipal entities are increasingly linked to other governmental entitities within the same state, the municipal bankruptcy process could benefit if the state in which a municpal debtor is located was involved in the initial process to assure that the state, which has the legal authority to supervise, control and authorize its constituent political subdivisions, approves of the proposed actions by the municipality seeking bankruptcy protection.	Add two new paragraphs to § 109(c): (i) a municipal debtor give notice to "Supervising State Authority" that it may file a petition at least 14 days, but not more than 60 days, prior to filing; (ii) if it is a "Major Municipal Issuer," (more than $25,000,000 of outstanding bonds, securities or other obligations for borrowed money payable from sources other than special revenues), it is required to obtain written approval of such filing or obtain, within 60 days after the filing, a court order that such municipality is insolvent. {Statutory Language Enclosed}
NBRC- 0005	Richard L. Haeussler	Law Offices of Richard L. Haessler. Sole practitioner who represents chapter 7 & 13 debtors.	922a1		922(a)(1) stay only extends to officers of the municipal entity and inhabitants of the entity. Does not stay actions against employees who do not reside within the confines of the entity.	Word "employee" should be added to 922a1
NBRC- 0003	Dean Pope, Peter Kornman & Steve Stern		109(c)	101	Since municipal entities are increasingly linked to other governmental entitities within the same state, the municipal bankruptcy process could benefit if the state in which a municpal debtor is located was involved in the initial process to assure that the state, which has the legal authority to supervise, control and authorize its constituent political subdivisions, approves of the proposed actions by the municipality seeking bankruptcy protection.	Add two new paragraphs to § 109(c): (i) a municipal debtor give notice to "Supervising State Authority" that it may file a petition at least 14 days, but not more than 60 days, prior to filing; (ii) if it is a "Major Municipal Issuer," (more than $25,000,000 of outstanding bonds, securities or other obligations for borrowed money payable from sources other than special revenues), it is required to obtain written approval of such filing or obtain, within 60 days after the filing, a court order that such municipality is insolvent. *Statutory Language Enclosed.
NBRC- 0005	Richard L. Haeussler	Law Offices of Richard L. Haessler. Sole practitioner who represents chapter 7 & 13 debtors.	922(a)(1)		922(a)(1) stay only extends to officers of the municipal entity and inhabitants of the entity. Does not stay actions against employees who do not reside within the confines of the entity.	Word "employee" should be added to 922(a)(1)
NBRC- 0009	Hon. James E. Yacos	Judiciary; United States Bankruptcy Court for the District of New Hampshire	109(c)		The current legislation with regard to qualification for filing a Chapter 9 petition by a municipality is fraught with ambiguity despite recent the recent amendment to the eligiblity provision. As more municipalities and governmental agencies engage in "privatization" contracts with commercial entities, onerous contractual obligations will force governmental debtors to seek relief in bankruptcy and the eligiblity requirements are not clear.	Amend § 109(c) and clarify.
NBRC- 0303	Commercial Law League of America	Commercial Law League of America (CLLA)			The Commerical Law League of America believes that the following chapter 9 issues should be considered by the NBRC: 1) What prior authorizations should a municipality have to file for bankruptcy relief, and should there be more hurdles for low-debt municipalities (CLLA believes that this issue should receive "high priority") 2) Should the protections now accorded to pledged special revenues be expanded or contracted (CLLA believes that this issue should receive "high priority")	No additional details are provided.
NBRC- 0326	Sharon B. Heaton	On behalf of the Ad Hoc Committee on Municipal Bankruptcy Law Reform; Attorney			The author states that the Ad Hoc Committee on Municipal Bankruptcy Law Reform held a press conference on February 13, 1996, to discuss efforts to reform chapter 9. The author attaches a sample of articles resulting from this conference, including "Interview with AMBAC Vice President," "Panel Pushes Reform of Bankruptcy Laws to Add Flexibility," and "Panel Urges Bankruptcy Law Changes: Reform at Municipal Level Would Benefit Bondholders."	None.
NBRC- 0462	Richard L. Haeussler	Attorney	922	362	An employee of the county who is not a resident of the county is not covered by the stay granted by 11 USC §922.	Author suggests that a provision be added to include the term "employee" in 11 USC §922(a)(1) in the new bill.
NBRC- 0593	Richard L. Weill	President, MBIA Insurance Corporation			MBIA strongly endorses all of the recommendations offered in the Report of the Ad Hoc Committee on Municipal Bankruptcy Law Reform. Author also has specific concerns: general municipal bonds, considered to be the safest, are at risk after the Orange County Chapter 9, while bonds secured by "special revenues" continued to have access to the revenue stream securing their debt.	Expand the definition of "special revenues" to provide comparable protection to all municipal obligations.
NBRC- 0593	Richard L. Weill	President, MBIA Insurance Corporation			The bond needs assurances that the decision to disrupt payment of principal in interest to bondholders is made only as a last resort, in order to provide stability.	Proposed new Section 943(b)(6), which would require a plan of reorganizationto provide for the payment of all municipal bond claims in full unless the court determines that such repayment would prevent a municipality from providing essential municipal services, should be adopted.
NBRC- 0593	Richard L. Weill	President, MBIA Insurance Corporation			The retrospective test in the definition of "insolvent" in Section 101 is subject to manipulation.	Amend the definition of "insolvent" in Section 101 by eliminating the retrospective test.
NBRC- 0593	Richard L. Weill	President, MBIA Insurance Corporation			Bondholders expect issuers will do everything within their power to meet their obligations.	"MBIA further requests that the test for insolvecy provide that a municipality cannot, through the full exercise of its rights and powers, reasonably expect to meet its debts and other obligations."
NBRC- 0593	Richard L. Weill	President, MBIA Insurance Corporation			Reducing the time frames in Chapter 9 cases minimizes uncertainty and reassures the credit markets.	That proposed changes to Section 921(c) and (d) requiring a debtor to offer proof of insolvency within 60 days of filing a petition and requiring the court to conclude its hearing within 120 days be adopted.
NBRC- 0891	Harold R. Lichterman	Senior Counsel, Bank of America	901(a)		Author is concerned about the impact of Proposal #18 of the Government Working Group on pending bankruptcy cases, in particular Orange County. This proposal suggests adding §§ 555, 556, and 560 to the list set forth in 11 U.S.C. 901(a). "If Congress enacts this change and is silent as to its intent it will indicate that the law has changed and benefit one side. If it declares that its intent is to clarify existing law it benefits the other."	" While I think the better view is that this Pproposal constitutes a clarification rather than a change, fairness might dictate that the Commission suggest that Congressional intent clearly indicate that if this change is made it is to be prospective only."
NBRC- 0941	Mike Sutherland	Attorney, Vinson & Elkins L.L.P.			"In view of the recent (abusive in my view) Chapter 9 filing by the Town of Westlake, Texas, it may be advisable to tighten up Chapter 9 filing requirements slightly to specify that the municipality must actually have current and/or incurred debts beyond its ability to repay, and not merely prosepective or hoped-for expenditures beyond it ability to finance."
NBRC- 0967	Ann c. Stern	Chairman and CEO, Financial Guaranty Insurance Company (FGIC)			"FGIC strongly endorses all of the recommendations offered in the Report of the Ad Hoc Committee on Municipal Bankruptcy Law Reform." "The recommendation of greatest significance to us is the expansion and revision of the rules regarding general obligation bonds to track more closely the rules governing 'special revenue' bonds..." Investors had considered general obligation bonds to be the safest type of municipal bonds, until the Orange County Chapter 9 filing showed that general obligation bonds were at risk while bonds secured by 'special revenues' continued to have uninterrupted access ot the revenue stream securing the debt service payments."	"Expanding the definition of 'special revenues' to provide comparable protection to all municipal obligations would remove the handicap that general obligation bonds currently face in a bankruptcy scenario and reinforce the market perception that general obligation bonds are the safest class of municipal debt." Second, FGIC also supports requirement of new section 943(b)(6) that a plan of reorganization provide for the payment of all municipal bond claims in full unless the court determines that such repayment would prevent a municipality from providing essential municipal services. "Third, FGIC strongly endorses the recommendation that would amend the definition of "insolvent" in Section 101 by eliminating the retrospective test...FGIC, further requests that the test for insolvency provide that a municipality cannot, through the full exercise of its rights and powers, reasonably expect to meet its debts and other obligations." "Finally, we believe that proposed changes to Section 921(c) and (d) requiring a debtor to offer proof of insolvency within 60 days of filing a petition and requiring the court to conclude its hearing within 120 days minimizes uncertainty..."
NBRC- 0996	Kenneth Klee	Attorney, Stutman, Treister & Glatt	1113		With regard to the proposal to insert state labor law and 1113 protections into Chapter 9, author points out that there is "substantial legislative history rejecting similar proposals in 1976 and 1992. There are serious 10th amendment concerns. Also, it is bad policy to force a municipality to continue to be bound to a contract when tis very survival might be at stake."	Author strongly opposes this proposal.