[Congressional Bills 107th Congress]
[From the U.S. Government Publishing Office]
[S. 2798 Introduced in Senate (IS)]







107th CONGRESS
  2d Session
                                S. 2798

To protect employees and retirees from corporate practices that deprive 
them of their earnings and retirement savings when a business files for 
             bankruptcy under title 11, United States Code.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             July 25, 2002

 Mr. Durbin (for himself and Mr. Leahy) introduced the following bill; 
  which was read twice and referred to the Committee on the Judiciary

_______________________________________________________________________

                                 A BILL


 
To protect employees and retirees from corporate practices that deprive 
them of their earnings and retirement savings when a business files for 
             bankruptcy under title 11, United States Code.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Employee Abuse 
Prevention Act of 2002''.
    (b) Table of Contents.--The table of contents for this Act is as 
follows:

Sec. 1. Short title.
                  TITLE I--PRESERVING CORPORATE ASSETS

Sec. 101. Federal fraudulent transfer amendments.
Sec. 102. Transparent characterization of transactions.
Sec. 103. Trustee as good faith reliance purchaser for value.
Sec. 104. Limitation on retention bonuses, severance pay, and certain 
                            other payments.
Sec. 105. Limitation on avoidance of certain transfers.
Sec. 106. Effective date.
          TITLE II--ENHANCING THE TREATMENT OF EMPLOYEE CLAIMS

Sec. 201. Fair treatment of employee benefits.
Sec. 202. Wage priority and employee benefit cap.
Sec. 203. Enhanced treatment of claims arising from failure to meet 
                            fiduciary obligations toward employees and 
                            retirees.
Sec. 204. Enhanced review of pre-bankruptcy terminations of retiree 
                            benefits.
Sec. 205. Local filing of bankruptcy cases.
Sec. 206. Effective date.

                  TITLE I--PRESERVING CORPORATE ASSETS

SEC. 101. FEDERAL FRAUDULENT TRANSFER AMENDMENTS.

    Section 548 of title 11, United States Code, is amended--
            (1) in subsection (a)(1)--
                    (A) by striking ``one year'' and inserting ``4 
                years'';
                    (B) in subparagraph (A), by striking ``or'' at the 
                end;
                    (C) in subparagraph (B), by striking the period at 
                the end and inserting ``; or''; and
                    (D) by adding at the end the following:
            ``(C) made an excess benefit transfer or incurred an excess 
        benefit obligation to an insider, general partner, or other 
        affiliated person of the debtor, if the debtor--
                    ``(i) was insolvent on the date on which the 
                transfer was made or the obligation was incurred; or
                    ``(ii) became insolvent as a result of the transfer 
                or obligation.''; and
            (2) in subsection (d)(2)--
                    (A) in subparagraph (C), by striking ``and'' at the 
                end;
                    (B) in subparagraph (D), by striking the period at 
                the end and inserting ``; and''; and
                    (C) by adding at the end the following:
                    ``(E) the terms `excess benefit transfer' and 
                `excess benefit obligation' mean--
                            ``(i) a transfer or obligation, as 
                        applicable, to an insider, general partner, or 
                        other affiliated person of the debtor in an 
                        amount that is not less than 10 times the 
                        amount of the mean transfer or obligation of a 
                        similar kind given to nonmanagement employees 
                        during the calendar year in which the transfer 
                        is made or the obligation is incurred; or
                            ``(ii) if no such similar transfers were 
                        made to, or obligations incurred for the 
                        benefit of, such nonmanagement employees during 
                        such calendar year, a transfer or obligation 
                        that is in an amount that is not less than 25 
                        percent more than the amount of any similar 
                        transfer or obligation made to or incurred for 
                        the benefit of such insider, partner, or other 
                        affiliated person of the debtor during the 
                        calendar year before the year in which such 
                        transfer is made or obligation is incurred.''.

SEC. 102. TRANSPARENT CHARACTERIZATION OF TRANSACTIONS.

    Section 105 of title 11, United States Code, is amended by adding 
at the end the following:
            ``(e)(1) Notwithstanding any otherwise applicable provision 
        of law, the court may recharacterize as a secured loan, a sale, 
        lease, or transaction if the material characteristics of the 
        sale, lease, or transaction are substantially similar to the 
        characteristics of a secured loan.
            ``(2) Nothing in paragraph (1) shall be construed to 
        modify, impair, or supersede any other authority the court has 
        to recharacterize a sale, lease, or transaction.''.

SEC. 103. TRUSTEE AS GOOD FAITH RELIANCE PURCHASER FOR VALUE.

    (a) Trustee as Lien Creditor.--Section 544(a) of title 11, United 
States Code, is amended--
            (1) by inserting ``, the debtor,'' after ``knowledge of the 
        trustee'';
            (2) by inserting ``, property of the estate,'' after 
        ``property of the debtor'';
            (3) in paragraph (2), by striking ``or'' at the end;
            (4) in paragraph (3), by striking the period at the end and 
        inserting ``; or''; and
            (5) by adding at the end the following:
            ``(4) a good faith purchaser of property that--
                    ``(A) gave value for such property as of the time 
                of the commencement of the case;
                    ``(B) gave such value in reliance on incorrect 
                information contained in any public registry of 
                security interests or liens; and
                    ``(C) either--
                            ``(i) took possession of the property, 
                        whether or not such creditor actually could 
                        take possession of the property; or
                            ``(ii) satisfied any applicable non-
                        bankruptcy law such that no creditor on a 
                        simple contract could have obtained a prior 
                        judicial lien on such property whether or not 
                        such a creditor exists.''.
    (b) Preferences.--Section 547(e)(1)(B) of title 11, United States 
Code, is amended by striking ``creditor on a simple contract cannot 
acquire a judicial lien'' and inserting ``good faith purchaser for 
value of such fixture or property that reasonably relied on available 
information cannot acquire an interest''.

SEC. 104. LIMITATION ON RETENTION BONUSES, SEVERANCE PAY, AND CERTAIN 
              OTHER PAYMENTS.

    Section 503 of title 11, United States Code, is amended by adding 
at the end the following:
    ``(c)(1) Notwithstanding subsection (b), there shall neither be 
allowed, nor paid--
            ``(A) a transfer made to, or an obligation incurred for the 
        benefit of, an insider of the debtor for the purpose of 
        inducing such person to remain with the debtor's business, 
        absent a finding by the court based on evidence in the record 
        that--
                    ``(i) the transfer or obligation is essential to 
                retention of the person because the individual has a 
                bona fide job offer from another business at the same 
                or greater rate of compensation;
                    ``(ii) the services provided by the person are 
                essential to the survival of the business; and
                    ``(iii) either--
                            ``(I) the amount of the transfer made to, 
                        or obligation incurred for the benefit of, the 
                        person is not greater than an amount equal to 
                        10 times the amount of the mean transfer or 
                        obligation of a similar kind given to 
                        nonmanagement employees for any purpose during 
                        the calendar year in which the transfer is made 
                        or the obligation is incurred; or
                            ``(II) if no such similar transfers were 
                        made to, or obligations were incurred for the 
                        benefit of, such nonmanagement employees during 
                        such calendar year, the amount of the transfer 
                        or obligation is not greater than an amount 
                        equal to 25 percent of the amount of any 
                        similar transfer or obligation made to or 
                        incurred for the benefit of such insider for 
                        any purpose during the calendar year before the 
                        year in which such transfer is made or 
                        obligation is incurred;
            ``(B) a severance payment to an insider of the debtor, 
        unless--
                    ``(i) the payment is part of a program that is 
                generally applicable to all full-time employees; and
                    ``(ii) the amount of the payment is not greater 
                than 10 times the amount of the mean severance pay 
                given to nonmanagement employees during the calendar 
                year in which the payment is made; or
            ``(C) other transfers or obligations that are outside the 
        ordinary course of business and not justified by the facts and 
        circumstances of the case.
    ``(2) For purposes of paragraph (1)(C), transfers made to, or 
obligations incurred for the benefit of, officers, managers, or 
consultants hired after the date of the filing of the petition shall be 
considered outside the ordinary course of business.''.

SEC. 105. LIMITATION ON AVOIDANCE OF CERTAIN TRANSFERS.

    Section 546(e) of title 11, United States Code, is amended to read 
as follows:
    ``(e) Notwithstanding section 544, 545, 547, 548(a)(1)(B), or 
548(b), the trustee--
            ``(1) may not avoid any transfer that is a margin payment 
        (as defined in section 101, 741, or 761) or settlement payment 
        (as defined in section 101 or 741) that is made before the 
        commencement of the case to any entity, including any commodity 
        broker, forward contract merchant, stockbroker, financial 
        institution, or securities clearing agency, unless that 
        entity--
                    ``(A) receives the transfer or the benefit of the 
                transfer on behalf of its own account; or
                    ``(B) made such transfer with actual intent to 
                hinder, delay, or defraud any entity, as provided in 
                section 548(a)(1)(A); and
            ``(2) may avoid a transfer described in paragraph (1) with 
        respect to any entity that receives the benefit of the transfer 
        or on whose behalf the transfer is made.''.

SEC. 106. EFFECTIVE DATE.

    This title and the amendments made by this title shall take effect 
on the date of enactment of this Act with respect to cases and 
proceedings arising under title 11, United States Code, or arising in 
or related to cases or proceedings arising under title 11, United 
States Code, that are pending on or commenced before, on, or after the 
date of enactment of this Act.

          TITLE II--ENHANCING THE TREATMENT OF EMPLOYEE CLAIMS

SEC. 201. FAIR TREATMENT OF EMPLOYEE BENEFITS.

    (a) Definition of Claim.--Section 101(5) of title 11, United States 
Code, is amended--
            (1) in subparagraph (A), by striking ``or'' at the end;
            (2) in subparagraph (B), by inserting ``or'' after the 
        semicolon; and
            (3) by adding at the end the following:
                    ``(C) right or interest in equity securities of the 
                debtor, or an affiliate of the debtor, held in a 
                pension plan (within the meaning of section 3(2) of the 
                Employee Retirement Income Security Act of 1974 (29 
                U.S.C. 1002(2))) for the benefit of an individual who 
                is not an officer or director of the debtor, if such 
                securities were attributable to--
                            ``(i) employer contributions by the debtor 
                        or an affiliate of the debtor other than 
                        elective deferrals (within the meaning of 
                        section 402(g) of the Internal Revenue Code of 
                        1986), and any earnings thereon; and
                            ``(ii) elective deferrals (and any earnings 
                        thereon) that are required to be invested in 
                        such securities under the terms of the plan or 
                        at the direction of a person other than the 
                        individual or any beneficiary,
                except that this subparagraph shall not apply to any 
                such securities during any period during which the 
                individual or any beneficiary has the right to direct 
                the plan to divest such securities and to reinvest an 
                equivalent amount in other investment options of the 
                plan;''.
    (b) Priorities.--Section 507(a)(4) of title 11, United States Code, 
is amended--
            (1) in subparagraph (B), by indenting the left margin of 
        clauses (i) and (ii) 2 ems to the right and redesignating such 
        clauses as subclauses (I) and (II), respectively;
            (2) by indenting the left margin of subparagraphs (A) and 
        (B) 2 ems to the right and redesignating such subparagraphs as 
        clauses (i) and (ii), respectively;
            (3) in the matter preceding clause (i), as so redesignated, 
        by striking ``Fourth'' and all that follows through ``plan--'' 
        and inserting the following: ``Fourth--
                    ``(A) allowed unsecured claims for contributions to 
                an employee benefit plan--'';
            (4) by striking the period at the end and inserting the 
        following: ``or''; and
            (5) by adding at the end the following:
                    ``(B) allowed claims with respect to rights or 
                interests in equity securities of the debtor, or an 
                affiliate of the debtor, that are held in a pension 
                plan (within the meaning of section 3(2) of the 
                Employee Retirement Income Security Act of 1974 (29 
                U.S.C. 1002(2))), without regard to when services were 
                rendered or limitation in amount, and measured by the 
                market value of the stock at the time the stock was 
                contributed to, or purchased by, the plan.''.

SEC. 202. WAGE PRIORITY AND EMPLOYEE BENEFIT CAP.

    Section 507(a) of title 11, United States Code, is amended--
            (1) in paragraph (3), by striking ``$4,000'' and inserting 
        ``$13,500''; and
            (2) in paragraph (4)(B)(i), by striking ``$4,000'' and 
        inserting ``$13,500''.

SEC. 203. ENHANCED TREATMENT OF CLAIMS ARISING FROM FAILURE TO MEET 
              FIDUCIARY OBLIGATIONS TOWARD EMPLOYEES AND RETIREES.

    (a) Treatment as Administrative Expense.--Section 503(b) of title 
11, United States Code, is amended--
            (1) in paragraph (5), by striking ``and'' at the end;
            (2) in paragraph (6), by striking the period at the end and 
        inserting ``; and''; and
            (3) by adding at the end the following:
            ``(7) claims arising out of the breach of any fiduciary 
        duty under part 4 of subtitle B of title I of the Employee 
        Retirement Income Security Act of 1974 (29 U.S.C. 1101 et seq.) 
        or State law with respect to any pension plan maintained by the 
        debtor, along with any reasonable fees, costs, or charges 
        related to those claims.''.
    (b) Determination of Secured Status.--Section 506 of title 11, 
United States Code, is amended by adding at the end the following:
    ``(e) Any pension plan or any participant or beneficiary of such 
plan with administrative expense claims described in section 503(b)(7) 
may recover any unpaid amount of such claims from any property securing 
an allowed secured claim.
    (c) Priority.--Section 507(b) of title 11, United States Code, is 
amended--
            (1) by striking ``(b) If'' and inserting the following:
    ``(b)(1) If''; and
            (2) by adding at the end the following:
    ``(2) A claim allowable under section 503(b)(7) shall have priority 
over every other claim allowable under subsection (a)(1) of this 
section.''.

SEC. 204. ENHANCED REVIEW OF PRE-BANKRUPTCY TERMINATIONS OF RETIREE 
              BENEFITS.

    Section 1114 of title 11, United States Code, is amended by adding 
at the end the following:
    ``(m)(1) If any retiree benefits have been modified within the 180-
day period before the date of the filing of the petition, the court 
shall appoint an authorized representative pursuant to subsection (b) 
to investigate the modification of retiree benefits and to enforce the 
rights of persons under this title as they relate to retiree benefits.
    ``(2) If the court determines, after notice and a hearing, that the 
modification of retiree benefits was made in contemplation of 
bankruptcy and was not essential to the continuation of the business of 
the debtor, the court shall order that--
            ``(A) the modified retiree benefits be reinstated effective 
        as of the date on which the retiree benefits were modified; and
            ``(B) the trustee promptly perform all unperformed 
        obligations of the debtor to provide retiree benefits, as 
        reinstated, for the period dating from the date of the 
        modification to the date of the filing of the petition.
    ``(3) For purposes of this subsection, any modification of retiree 
benefits within the 180-day period before the date of the filing of the 
petition is presumed to have been made in contemplation of bankruptcy, 
and the trustee has the burden of proving that the modification of 
retiree benefits was not made in contemplation of bankruptcy.
    ``(4) For purposes of this subsection, the term `retiree benefits' 
means any employee benefits provided to a retiree or a beneficiary of a 
retiree.''.

SEC. 205. LOCAL FILING OF BANKRUPTCY CASES.

    (a) Venue of Cases Under Title 11.--Section 1408 of title 28, 
United States Code, is amended--
            (1) by striking ``Except'' and inserting the following:
    ``(a) Except'';
            (2) in paragraph (2), by inserting ``as defined in section 
        101(2)(A) of title 11'' after ``affiliate''; and
            (3) by adding at the end the following:
    ``(b) For purposes of subsection (a)--
            ``(1) if the debtor is a corporation, the domicile and 
        residence of the debtor are conclusively presumed to be where 
        the debtor's principal place of business in the United States 
        is located; and
            ``(2) if an affiliate, as defined in section 101(2)(A) of 
        title 11, is not a debtor in a case under title 11, but the 
        debtor is an affiliate as defined in subparagraph (B), (C), or 
        (D) of that section, then the bankruptcy case may be filed in 
        the district in which the principal place of business of the 
        affiliate with the greatest assets in the United States is 
        located.''.
    (b) Change of Venue.--Section 1412 of title 28, United States Code, 
is amended--
            (1) by striking ``A'' and inserting the following:
    ``(a) A''; and
            (2) by adding at the end the following:
    ``(b) The district court of a district in which is filed a case 
laying venue in the wrong division or district shall dismiss, or if it 
be in the interest of justice, transfer such case to any district or 
division in which it could have been brought.
    ``(c) Nothing in this chapter shall impair the jurisdiction of a 
district court of any matter involving a party who does not interpose 
timely and sufficient objection to the venue.
    ``(d) As used in this section--
            ``(1) the term ``district court'' includes--
                    ``(A) the bankruptcy judges of each such court as 
                defined in section 151 of this title; and
                    ``(B) the District Court of Guam, the District 
                Court for the Northern Mariana Islands, and the 
                District Court of the Virgin Islands, including any 
                bankruptcy judge of each such court; and
            ``(2) the term ``district'' includes the territorial 
        jurisdiction of each such court.''.

SEC. 206. EFFECTIVE DATE.

    (a) In General.--Except as provided in subsection (b), this title 
and the amendments made by this title shall take effect on the date of 
enactment of this Act with respect to cases and proceedings arising 
under title 11, United States Code, or arising in or related to cases 
or proceedings arising under title 11, United States Code, that are 
pending on or commenced before, on, or after the date of enactment of 
this Act.
    (b) Liens.--The amendment made by section 203(b) shall only apply 
to liens created on or after the date of enactment of this Act.
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