American Bankruptcy Institute Update

March 9, 2005

In This Issue

Highlights

Legislation Update

Senate on Brink of Passing Bankruptcy Bill; Conflict of Interest Provision Snags Final Approval

Senate supporters of a bipartisan bankruptcy bill tonight marched ever closer to final passage of S. 256. The bill—the most significant change in a generation—has been hailed by its sponsors and decried by its opponents during a week of Senate floor debate. During the session today, the Senate rebuffed all amendments to amend the bill’s means test for eligibility for consumer debtors, fix a hard cap on the homestead exemption, or disallow claims by creditors who had issued credit to those under the age of 21, among several roll call votes. All of the proposed amendments, and the Senate’s disposition thereof, are linked on ABI’s comprehensive legislative website.

A number of filed amendments were either withdrawn or not offered, once it became clear that all would meet the same fate on a roll call vote. For example, an amendment by Sen. Jeff Bingaman (D–N.M.) to lessen the potential attorney liability for incorrect debtor schedules, supported by the American Bar Association, was withdrawn after the issue was discussed.

Cloture was invoked on Tuesday by a wide margin, and the 30 additional hours for debate has, as a practical matter expired, leaving only a vote on final passage after perhaps approval of a technical managers amendment.

However, the bill’s 8-year history of eleventh hour snags may be at hand again. The issue now surrounds a proposed change (in §414) to the definition of “disinterestedness” under §101(14) of the Code, to eliminate the automatic disqualification of investment banking firms from representing a company if the investment bank was previously the underwriter for an outstanding security of the now-bankrupt company. The provision is important to several large investment banking firms that seek exclusion from the per se disqualification rules. A bipartisan pending amendment by Sens. Patrick Leahy (D–Vt.) and Paul Sarbanes (D—Md.), supported by the Securities and Exchange Commission, would strike the provision and restore the automatic disqualification of firms who served as investment banker for any outstanding security of the debtor. Because it is unclear how this vote might break, the leadership has not permitted a vote on this or other pending amendments. As of 8 p.m., it is unclear how or when the stalemate will be resolved.

Read the SEC’s comment on the provision.