Bankruptcy Law - Article 2
New U.S. Bankruptcy Law Affects Business as well as Consumer Bankruptciesby
DLA Piper Rudnick Gray Cary US LLP
Washington Office - April 21, 2005
President George W. Bush is expected to sign into law the Bankruptcy Abuse Prevention and Consumer Protection Act (the Bill) (S. 256) which amends Title 11 of the United States Code (the Bankruptcy Code).
Although the media have focused on the Bill's impact on consumer bankruptcies, the Bill contains numerous significant amendments that will affect commercial bankruptcies as well. We have prepared a memorandum that summarizes certain material amendments and includes "blacklined" Bankruptcy Code sections reflecting the changes.
Reforms that Businesses Should Note
The Bill contemplates significant changes in business bankruptcy cases. Some significant amendments contained in the Bill include:
• Requiring debtors in health care business bankruptcies to implement new procedures for handling patient records, providing priority to costs associated with closing health care businesses, and the mandatory appointment of an ombudsman to monitor the quality of patient care.
• Adopting a new Chapter 15 of the Bankruptcy Code that provides for the recognition of foreign insolvency proceedings in United States bankruptcy courts and relief for foreign debtors involved in cross-border insolvencies.
• Expanding the "ordinary course of business" defense to preference actions, thereby making it easier for preference defendants to utilize this defense.
• Limiting a trustee's (or debtor in possession's) ability to extend the time to assume or reject unexpired nonresidential real property leases, providing 120 days to assume or reject after filing and an additional 90 day extension if warranted. No extensions beyond those periods will be approved by a bankruptcy court except with the written consent of the lessor.
• Overhauling the treatment of several tax provisions, including the treatment and priority of liens and requiring additional disclosures.
• Creating a new standard for evaluating the propriety of key employee retention programs (KERP). The new standard makes it significantly more difficult to obtain approval of KERP programs for management teams of Chapter 11 debtors.
• Authorizing bankruptcy judges to change the composition of creditors committees.
• Preserving and clarifying the rights of parties to various types of financial contracts (e.g., securities contracts, commodities or futures contracts, repurchase contracts, swap agreements, and master netting agreements).
