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Reprinted from the April 2005 ABI Journal April 1, 2005

Web posted and Copyright © April 1, 2005, American Bankruptcy Institute.

House Panel Rubber-stamps S. 256
House Floor and White House Await

ver the vocal objections of Democrats, Republicans on the House Judiciary Committee rolled the bankruptcy bill through the committee in the exact form received from the Senate on March 10. The committee defeated all 18 amendments attempted by Democrats. The vote on final passage was 22-13, clearing the bill for the House floor in early April. If, as expected, no amendments are added, S. 256 will be sent to President Bush for his certain signature.

Chairman F. James Sensenbrenner (R-Wis.) stated: "The need for bankruptcy reform is long overdue and crucial to our nation's economy and the well-being of our citizens. Every day that goes by without these reforms, more abuse and fraud goes undetected... We need to close the so-called 'mansion loophole' now. We need to ensure that deadbeat parents can no longer use bankruptcy to shed their child and spousal support obligations. We need to make chapter 12 a permanent component of the Bankruptcy Code and to extend that relief to family fishermen. And we need to enact important administrative reforms like direct appeals, streamlined reorganization procedures and additional judgeships that will reduce unnecessary burdens upon the current bankruptcy system."

Senate Action Adds Tough Limit on KERPs

Before passing S. 256 by a 74-25 vote, the full Senate beat back virtually all attempts to amend the bill. The Senate rejected the so-called Schumer amendment, excepting from discharge debts arising from fines imposed for impeding access to abortion clinics, and an amendment to restore the per se disqualification of investment banks from being retained post-petition where they had been an underwriter of the debtor before bankruptcy. One important change in current chapter 11 practice was added at the committee level, however. The committee approved, with little debate, a Kennedy amendment to restrict the use of key employee retention plans, bonuses and severance payments in chapter 11 reorganizations. The provision would prohibit a bankruptcy judge from approving retention bonuses in every case unless the debtor can prove that the employee has a bona fide job offer at the same or greater rate of compensation; was prepared to accept the job offer and the services of that employee are "essential to the survival of the business." The amendment also places significant caps on the amount of such bonuses and payments. A number of restructuring professionals have expressed concern over the scope of the provision for its potential effect on the reorganization process.



 

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