[Congressional Record Volume 140, Number 144 (Thursday, October 6, 1994)]
[Senate]
[Page S]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


[Congressional Record: October 6, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]

 
                     BANKRUPTCY REFORM ACT OF 1994

  Mr. FORD. Mr. President, I ask unanimous consent that the Senate 
proceed to the immediate consideration of H.R. 5116, the bankruptcy 
reform bill, just received from the House; that the bill be deemed read 
the third time, passed, the motion to reconsider laid upon the table.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  So the bill (H.R. 5116) was deemed read the third time, and passed.
  Mr. GRASSLEY. Mr. President, I am pleased to support H.R. 5116. This 
bill represents the collective wisdom of the Senate and the House 
concerning needed bankruptcy reforms. As an original cosponsor of the 
Senate-passed bill, S. 540, I would have its enactment. Nonetheless, 
compromise is the key to enact just about anything, I can support this 
compromise bill as a good effort to improve our Nation's bankruptcy 
laws. Indeed, several of the provisions of the House bill were an 
improvement on the Senate language.
  At this time, I would like to address a number of the issues covered 
by this legislation. First, I am pleased that the House has agreed to 
create a bankruptcy review commission. Since the enactment of the 
present code in 1978, the code has not been able to accommodate the 
many changes in the economy and other laws. Although the code largely 
has functioned well, no one in 1978 could have foreseen the changed 
circumstances that now confront our bankruptcy system. This year, more 
than 900,000 bankruptcy petitions will be filed, many more than anyone 
could have imagined in 1978. Since 1978, the world economy has become 
more international in scope, and the economic boom, in part financed 
through debt in the 1980's, has led to a multitude of bankruptcies in 
the 1990's. Additionally, new laws have been enacted whose relation to 
bankruptcy has not been carefully evaluated. And despite the 1984 
legislation in response to the Northern Pipeline decision, the 
constitutionality of the current bankruptcy system is not certain. The 
Blue-Ribbon Bankruptcy Commission established by this bill will 
evaluate the code's deficiencies, substantively and operationally, and 
make recommendations to the Congress for legislative change. Thus, 
while H.R. 5116 will improve the bankruptcy system, its greatest 
contributions will come from the commission it creates.
  One provision in section 104 of the bill concerns the establishment 
of bankruptcy appellate panels. The Federal courts study committee 
recommended that Congress require each Federal Court of Appeals 
establish a bankruptcy appellate panel. It also recommended that 
parties affirmatively opt out of the procedure or else have their cases 
heard under it. Unless specified circumstances apply, the Federal 
Courts of Appeals will be required to establish bankruptcy appellate 
panels under this legislation. The Federal Courts Study Committee found 
that the ninth circuit's BAPS disposed of 902 appeals in 1987 and 664 
in 1988, reducing the workload of both district and appellate courts, 
and have received favorable reviews from both bench and bar. They 
foster expertise, and increase the morale, of bankruptcy judges, in 
part by offering them an opportunity for appellate work. I am pleased 
that H.R. 5116 will promote this procedure.
  Section 202 of the bill amends section 550 of the code relating to 
the recovery of preferences to insiders. Currently, section 547 of the 
bankruptcy code authorizes trustees to recapture preferential payments 
be made to creditors within 90 days prior to a bankruptcy filing. 
Because of the concern that corporate insiders (such as officers and 
directors) who are creditors of their own corporation have an unfair 
advantage over outside creditors, section 547 of the Bankruptcy Code 
further authorizes trustees to recapture any preferential payments to 
such insiders which were made a full year prior to a bankrputcy filing.
  Several recent court decisions, beginning with Levit v. Ingersoll 
Rand Financial Corp. in re V.N. Deprizio Construction Co., 874 F.2d 
1186 (7th Cir. 1989), have allowed trustees to recapture payments made 
to non-insider creditors a full year prior to the bankruptcy filing, if 
an insider benefits from the transfer in some way. Although the 
creditor is not an insider in these cases, the courts have reasoned 
that because the repayment benefited a corporate insider (namely the 
officer who signed the guarantee), the non-insider transferee should be 
liable for returning the transfer to the bankrupt estate as if the 
transferee were an insider as well.
  Our legislation overrules the Deprizio line of decisions and 
clarifies congressional intent that non-insider transferees should not 
be subject to the preference provisions of the Bankruptcy Code beyond 
the 90-day statutory period. Our aim is to encourage commercial lenders 
and landlords to extend credit to smaller business entities.
  Section 219 makes needed changes in the treatment of leases of 
personal property. Sixty days after the order for relief, the debtor 
will have to perform all obligations under the equipment lease, unless 
the court holds a hearing and determines otherwise, with the burden on 
the debtor. The word ``first'' as used in the section refers to the 
payments and the performance of all other obligations that initially 
become due more than 60 days after the order for relief. The purpose of 
that reference is to make clear the intent that the provision does not 
affect payments originally due prior to 60 days before the order of 
relief.
  Title III of the bill will assist homeowners. Some homeowners attempt 
to prevent their homes from being foreclosed upon, even though a 
bankruptcy court has ordered a foreclosure sale. There may be several 
months between the court order and the foreclosure sale. Section 301 
will preempt conflicting State laws, and permit homeowners to present a 
plan to pay off their mortgage debt until the foreclosure sale actually 
occurs. And section 305 will prevent mortgage lenders from imposing 
interest on interest when mortgage lenders from imposing interest on 
interest when mortgage arrearages are cured, even when the mortgage 
instrument is silent on the subject. This section will affect all 
future mortgages unless the mortgage expressly retains the lender's 
right to impose such interest on interest.
  Title III also expands the criminal code's bankruptcy provision. 
Section 312 of the bill enacts a new section 157 to 18 U.S. Code on 
Bankruptcy Crimes. The provisions of section 501 of S. 540, which 
contained similar provisions, had a subsection (b) which contained 
certain provisions about requisite intent for criminal liability. The 
omission of these S. 540 provisions from H.R. 5116 is not intended to 
signal any congressional purpose to lower the standard on intent 
necessary to impose criminal liability on entities participating in the 
bankruptcy process. For example, bona fide settlements are not intended 
to be criminal under any provision of section 312 of H.R. 5116, nor are 
indeliberate errors in documents which are not part of any scheme to 
defraud. By way of further example, entities who act in good faith or 
who rely in good faith on advice of professional persons are not 
exposed to criminal liability under section 312.
  I wish to commend Senator Heflin for his persistent efforts to see to 
it that we enact these necessary reforms. I look forward to studying 
the report of the Bankruptcy Review Commission to determine what 
further efforts should be made to strengthen the operation of the 
bankruptcy code.
  Mr. HEFLIN. Mr. President, I rise to discuss H.R. 5116, the 
Bankruptcy Reform Act of 1994 that passed the Senate today.
  The passage of this bill brings to a close almost 5 years of work on 
this legislation. I would like to briefly outline some of the major 
provisions of this legislation.
  The first title of this bill is a collection of provisions intended 
to increase the efficiency of the bankruptcy court; helping debtors and 
creditors alike.
  The second title relates to consumer bankruptcy issues. Included in 
this section is an amendment allowing for the curing of a default on a 
person's principal residence, as well as a provision that will help 
ensure child support and alimony will continue to be paid after the 
filing of an individual bankruptcy.
  The next title addresses the area of commercial bankruptcy, 
specifically the role of chapter 11 in today's economy. In this section 
of the bill there are various provisions intended to update the 
bankruptcy code in light of the tremendous number of commercial filings 
each year.
  Title four of this bill may be the most important section of the 
entire bill. This title establishes the national bankruptcy review 
commission. The commission will have the ability to review and study a 
wide range of problems presently facing the bankruptcy system, as well 
as help prepare for the future. I encourage the funding for this 
commission, at the earliest opportunity, and in the first appropriate 
vehicle, so that it can begin its' task.
  I would like to mention several topics of importance that have come 
to my attention and which we have addressed during the consideration of 
this bill. This, of course, is not an exclusive list:
  The establishment of provisions within chapter 11 which are designed 
to help small businesses reorganize quickly and more efficiently;
  The problems in cases with single asset real estate;
  The establishment of a bankruptcy appellant panel to afford debtors 
and creditors an efficient mechanism for bankruptcy appeals;
  The new section 106(c) recodifies currently existing section 106(b). 
No substantive change in the law is intended.
  The problems faced by issuing card companies when a debtor uses their 
card to pay Federal taxes and subsequently files for bankruptcy;
  The protection of local governments ability to perfect and enforce 
tax liens;
  The confusion over the hotel income/rents issue;
  The clarification that section 365 protection for lessors requires 
the lessee to perform all obligations that become due or payable 60 
days after the order for relief;
  The highly complex and controversial issues that result from mass 
torts, health care, and environmental law.
  Mr. President, I would like to thank all of the Members of the Senate 
who have worked with me on this important legislation. I am hopeful 
that this bill will be signed into law.


                    treatment of production payments

  Mr. SIMPSON. Mr. President, I rise for the purpose of entering into a 
colloquy with the distinguished Senators from Alabama and Louisiana 
regarding section 208 of H.R. 5116 which relates to the treatment of 
production payments i a bankruptcy context.
  Mr. HEFLIN. I yield to my friends for the purpose of a colloquy.
  Mr. SIMPSON. I have been informed that during House consideration of 
the bills, certain legislative language, although implied, was 
inadvertently omitted by the other body. This language is extremely 
important to the bill. It is critical that the point of this language 
be clarified so that we fully understand that not only the conveyance 
of a production payment, but also an oil and gas lease, are each real 
property interest, excluded from the debtor's estate in bankruptcy.
  Mr. JOHNSTON. May good friend from Wyoming is correct, apparently 
there was some hesitation on the part of the other body to treat oil 
and gas leases in the bill language because there is currently no 
definition for an oil and gas lease in the Bankruptcy Code. The absence 
of a code definition in not relevant since the definition of and oil 
and gas lease is a matter of State statutory and case law. And further, 
I agree with him that production payments and oil and gas leases are 
both real property interests excluded from the debtor's estate in 
bankruptcy.
  Mr. HEFLIN. I thank my good friends for bringing this matter to my 
attention and I certainly defer to my colleagues' expertise in the oil 
and gas industry. I concur that both production payments and oil and 
gas leases are real property interests for purposes of section 541 of 
the Bankruptcy Code and I will point out that in S. 540 we included 
language to that effect.
  Mr. SIMPSON. I thank my good friend for that clarification, but I 
need to further point out drafting errors in the House section-by-
section description printed in the Congressional Record for October 4, 
1994, on page 10767. The language contains inaccuracies which must be 
corrected. Specifically, and I quote, ``a production payment is an 
interest in the product of an oil or gas producer * * *'' and ``* * * 
the interest in the product that is produced.'' I think we all know 
that a production payment is not an interest in `'product'', rather, it 
is an interest in certain reserves of an oil or gas producer. I further 
quote, ``These payments, often transferred by way of oil and gas 
leases, * * *'' Production payments are not transferred by oil and gas 
leases; they are created out of oil an gas leases by written 
conveyance. The sentence should instead read, ``The production payment 
is created out of an oil and gas lease, each of which is a real 
property interest.'' Finally, and I quote with reference to oil and gas 
producers ``generating income from their property'', it would be more 
appropriate to state that these capital-strapped producers may monetize 
their property without giving up operating control of their property.
  Mr. JOHNSTON. If the Senator will yield, I would like to point out 
that the terms product and reserves have two very different and 
distinct meanings in the oil and gas industry, therefore it is 
important that these points be clarified. And further, I agree with him 
that it is impossible to transfer a production payment by virtue of an 
oil and gas lease; rather, a production payment is carved out of an oil 
and gas lease.
  I agree with the Senator that it is very important to clear up any 
misunderstanding that may have been inadvertently created by the House 
regarding production payments and oil and gas leases; each of these 
interests is a real property interest.
  Mr. SIMPSON. I might add as a final point, the record fails to 
clarify the treatment of oil and gas leases in a bankruptcy context. A 
sentence should have been included in the House text that states: ``It 
is not the intent of this section to permit a conveyance of a 
production payment or an oil and gas lease to be characterized in a 
bankruptcy context as a contractual interest rejectable under section 
365 of the Bankruptcy Code.''
  Mr. HEFLIN. I concur with the honorable Senator from Wyoming, neither 
production payments nor oil and gas leases should be characterized in a 
bankruptcy context as a contractual interest rejectable under section 
365 of the Bankruptcy Code. And I thank both Senators for pointing out 
to me that the Congressional Record contains many inaccuracies 
evidencing a failure to define and understand the nature of these 
interests.
  Mr. SIMPSON. I thank my distinguished colleagues from Alabama and 
Louisiana.
  Mr. SIMPSON. Mr. President, I rise briefly to express my appreciation 
to my colleagues, Senators Howell Heflin and Charles Grassley, for 
their untiring work in the area of bankruptcy reform. Without their 
leadership, we would not see this important legislation enacted into 
law.
  I am particularly thankful for their assistance in including an 
amendment I offered to the Senate bill, regarding ``Production 
Payments'', in this legislation.
  It is important to note that the legislation we are now considering 
in the Senate, even though it is enrolled as a House bill, is in large 
part, the Senate-passed legislation that our colleagues crafted.
  So I am grateful that Members of both Houses of Congress have agreed 
to include protection under the bankruptcy code for oil and gas 
production payments, as provided by my original amendment.
  Mr. President, this is an issue which is very important to the oil 
and gas industry in the west. I would, very briefly, explain to my 
colleagues what my amendment to this legislation is.
  The property law governing transactions in oil and gas--as to both 
real and personal property--has led to some confusion in bankruptcy 
cases.
  Oil and gas exploration and development is already a very high risk 
undertaking, and uncertainty about how Federal courts will deal with 
particular issues makes it even riskier for potential investors.
  This is one narrow area where we in Congress can help to reduce 
unreasonable risk to innocent investors.
  Typically, the owner of rights to drill obtains part of the funding 
for a new well by agreeing to pay back the funding ``in kind''--
repayment is not in cash, but in product.
  That payment is a ``production payment''.
  A problem has arisen in that, if the produced declares bankruptcy, 
then some courts have looked to the production payments as a source of 
additional revenue for unsecured creditors.
  That is a very unfair result, Mr. President, because the owner of 
that production payment is blameless in the bankruptcy proceeding. 
Indeed, the owner of a production payment is analogous to what is known 
in legal terms as a ``bona fide purchaser for value''.
  This legislation recognizes that a production payment transferred 
prior to bankruptcy is a real property interest. it is therefore 
excluded for the estate of the debtor who transferred that interest to 
the current owner.
  The intent of this provision is that an oil and gas lease, out of 
which the production payment is created, is also recognized as a real 
property interest in bankruptcy law--just as that real property 
interest is recognized under the laws of the various States.
  When we crafted this provision, we were careful to make it clear that 
it was not our intent to permit a conveyance of a production payment to 
be treated as no more than a contractual interest. Such interests are 
commonly recharacterized in a bankruptcy proceeding with the result 
that the innocent owners of production payments are ``left out in the 
cold''. That is precisely the type of confusion and inequity that this 
provision is designed to prevent in the future.
  So, Mr. President, I wish to extend my appreciation to our 
colleagues, Senators Howell Heflin and Charles Grassley for their 
assistance. I would also recognize the valuable assistance provided by 
Oklahoma Representative Mike Synar, and House Judiciary Committee 
Chairman Jack Brooks, in accepting this provision as part of the final 
legislation which we will be voting on today. I thank them, and I thank 
the chair.


            creation of bankruptcy appellate panel services

  Mr. HEFLIN. Mr. President, the intent of Section 104(c) is to require 
the judicial council of each circuit to establish a bankruptcy 
appellate panel service. However, we also recognize that there will be 
some circumstances in individual circuits where the establishment of a 
bankruptcy appellate panel service would not be a benefit to the 
parties or to the system. Therefore, we have included language that 
permits a judicial council to determine that there are insufficient 
judicial resources available in the circuit to create a bankruptcy 
appellate panel service or that creation of such a service will result 
in undue delay or increased cost to the parties. For example, in some 
circuits the majority of appeals are generated from a single large 
district with numerous bankruptcy judges. However, in the remaining 
districts within the circuit there are only one or a small number of 
bankruptcy judges and very few appeals. Because the legislation 
prohibits a bankruptcy judge from hearing an appeal that originated in 
the district to which they are appointed, the burden of hearing such 
appeals will be placed on the judges for the smaller districts, while 
those judges from the District with the majority of the appeals in the 
circuit will be eligible to hear very few appeals. Because of this 
disparate distribution of appeals there may be insufficient judicial 
resources for the effective operation of a bankruptcy appellate panel 
service.
  Although the number of bankruptcy cases filed each year almost 
reached one million, the number of bankruptcy appeals is small in 
comparison. The average number of appeals per circuit for the last 
available 12-month period was 408. As with all averages, this number is 
lower in some circuits and higher in others. There may be situations 
where the number of bankruptcy appeals filed do not warrant the 
creation of this new system. In some districts, the medium disposition 
time for disposing of bankruptcy appeals is efficient under the current 
system.
  It should be recognized that the creation of a bankruptcy appellate 
panel service can help to establish a dependable body of bankruptcy 
case law.
  I ask that a letter be printed in the Record.
  There being no objection, the letter was ordered to be printed in the 
Record, as follows:

                                       U.S. Department of Justice,


                                Office of Legislative Affairs,

                                  Washington, DC, October 6, 1994.
     Hon. Howell Heflin,
     Chairman, Subcommittee on Courts and Administrative Practice, 
         Committee on the Judiciary, U.S. Senate, Washington, DC.
       Dear Mr. Chairman: I am writing with regard to proposed 
     bankruptcy legislation that would create a new bankruptcy 
     fraud statute, section 312 of H.R. 5116. To put this measure 
     in perspective, in calendar year 1993, there were over 
     875,000 bankruptcy cases filed; however there were a mere 183 
     bankruptcy fraud prosecutions during the analogous period of 
     FY 1993.
       As recently stated by the Department of Justice in a letter 
     to House Judiciary Committee Chairman Jack Brooks, dated 
     September 15, 1994:
       ``Section 157 [of Title 18 of the United States Code], 
     patterned after the wire and mail fraud statutes, would 
     require proof of devising or intending to devise a `scheme or 
     artifice to defraud.' Like the mail fraud statute, an 
     essential element of the proposed statute requires proof 
     beyond a reasonable doubt of a specific intent to defraud. 
     This is one of the highest mens rea standards in the criminal 
     law. Because of the high burden of proof, most courses of 
     action under the Bankruptcy Code and allowed by the 
     bankruptcy courts are unlikely to be prosecutable under this 
     new law or any other statute. * * * If however, there were no 
     `intent to defraud' present, as noted above, no prosecution 
     could result.''
       I hope that this background information allays your 
     concerns regarding proposed section 157.
           Sincerely,
                                                Sheila F. Anthony,
                                       Assistant Attorney General.


                         PERMANENT INJUNCTIONS

  Mr. BROWN. Mr. President, I wonder if the distinguished manager of 
the bill, the senior Senator from Alabama, is available to answer one 
of two questions that I have regarding this bill? Specifically, Mr. 
President, when S. 540, the Bankruptcy Reform Amendments, was 
considered by the Senate earlier this year, the Senate adopted an 
amendment sponsored by myself; the senior Senator from Alabama, Mr. 
Heflin; and the Senator from Florida, Mr. Graham. That amendment, which 
ultimately became Section 221 of the Senate-passed bill, sought to 
codify the authority of the courts to issue permanent injunctions under 
certain circumstances. Can the distinguished bill manager advise me 
regarding the disposition of that provision? Is it included in the bill 
that passed the other body and is before us for approval today?
  MR. HEFLIN. Mr. President, if the Senator will yield, I can advice 
the Senator that the provision be refers to was approved by the House 
and is a part of the measure we have before us today. What was Section 
221 of the Senate bill is how substantively reflected in Section 111 of 
the House bill. Certain minor changes to the language of the provision 
were recommended by the House, and I understand that the provision as 
adopted by the House is acceptable to the various parties that have 
been involved in this matter.
  MR. BROWN. Mr. President, I thank the distinguished bill manager for 
his response, and I wonder if I might make an additional inquiry? 
Specifically, Mr. President, I wonder if the Senator from Alabama can 
enlighten the Senate regarding the impact of this ``Supplemental 
Permanent Injunctions'' provision on those existing Injunctions that 
have been issued in asbestos-related Chapter 11 reorganizations, as 
well as its impact on any subsequent Injunction that may be issued in 
an asbestos-related reorganization proceeding.
  Mr. HEFLIN. Mr. President, if the Senator will yield, I would be 
happy to respond. Mr. President, Section 111 will codify a court's 
authority to issue a permanent injunction to supplement the existing 
injunctive effect of Section 524 of the Code in asbestos-related 
Chapter 11 reorganizations. This section provides that, if certain 
defined conditions are satisfied, a court may issue a supplemental 
permanent injunction barring asbestos-related claims or demands against 
the reorganized company and channeling those claims to an independent 
trust. To qualify under the statute, such a trust is to be funded in 
whole or in part by the securities of the reorganized company, which at 
some time could be borrowed against, or more likely sold outright, to 
raise cash to pay claims; and the reorganized obligation to make future 
payments, including dividends, to the asbestos victims' trust.
  Moreover this section is carefully limited to bankruptcy orders where 
certain specified conditions are satisfied, including requirements that 
a supermajority of the affected class of asbestos claimants vote to 
approve the plan creating the trust and authorizing the injunction, and 
that the terms of the injunction be set out in the plan or related 
documents and fully detailed in any plan description issued for the 
purposes of soliciting creditor approval. If and when these and other 
conditions are satisfied, the section provides that the affected 
injunction is permanent and irrevocable except on initial appeal of the 
plan, if any.

  Mr. President, this statutory affirmation of the court's existing 
injunctive authority is designed to help asbestos victims receive 
maximum value. It does so by assuring investors, lenders, and employees 
that the reorganized debtor has indeed emerged from Chapter 11 free and 
clear of all asbestos-related liabilities other than those defined in 
the confirmed plan of reorganization, and that all asbestos-related 
claims and demands must be made against the court-approved trust. This 
added certainty will ensure that the full value of such a trust's 
assets--the securities upon which it relies in order to generate 
resources to pay asbestos claims--can be realized.
  Finally, Mr. President, with respect to the Senator's specific 
question, this Section applies to injunctions in effect on or after the 
date of enactment. What that means is, for any injunction that may have 
been issued under a court's authority under the Code prior to 
enactment, such an injunction is afforded statutory permanence from the 
date of enactment forward, assuming that it otherwise meets the 
qualifying criteria described earlier. A good example of this would be 
the injunctions issued in the Manville and the UNR Industries 
reorganizations, both of which are intended to be covered by this 
section and both of which will be confirmed as permanent under this 
statute, so that the securities of these reorganized companies should 
no longer be discounted because of any fear of unknown asbestos 
liabilities. Regarding any prospective asbestos-related trusts and 
their related injunctions, they, too, would qualify under the statute 
so long as the criteria outlined in the proposed legislation are 
satisfied.
  Mr. BROWN. Mr. President, I thank the distinguished bill manager for 
his explanation, and I am pleased that this provision has been approved 
by the other body and can be approved by the Senate again here today. 
As the Senator from Alabama has ably stated, adoption of this provision 
will assure that the financial markets are free to value the securities 
of reorganized companies such as Denver-based Manville Corporation, 
unencumbered by any suggestion that asbestos-related claims arising 
from Manville's pre-bankruptcy activities, whether existing now or 
manifesting in the future, may reach to the reorganized company in any 
fashion other than that provided in the confirmed plan of 
reorganization. In essence, we are affirming what Chapter 11 
reorganization is supposed to be about: allowing an otherwise viable 
business to quantify, consolidate, and manage its debt so that it can 
satisfy its creditors to the maximum extent feasible, but without 
threatening its continued existence and the thousands of jobs that it 
provides. I am pleased to have been an original sponsor of this 
important provision, and I urge my colleagues to support it and the 
entire Bankruptcy Reform Amendments package that is before us today.
  Mr. HATCH. Mr. President, the Bankruptcy Act of 1994 is one of the 
most important pieces of economic legislation to be considered and 
passed by the 103d Congress. It is important because it clarifies many 
of the existing ambiguities in our bankruptcy law that have, in 
essence, discouraged the extension of new credit to our businesses in 
Utah and throughout the Nation.
  The bill responds to these concerns by offering clear guidance to 
both creditors and debtors as to the risks they are undertaking. It 
strikes a fair and delicate balance between the rights and 
responsibilities of creditors and the rights and obligations of 
debtors. More importantly, it encourages the credit community to extend 
much needed new capital to the well deserving businesses in our 
communities seeking to grow and expand. In sum, this bill is good for 
business, good for creditors and good for consumers.
  This bill also creates a new Bankruptcy Commission to study and 
investigate bankruptcy issues and problems. One issue that merits 
careful study is the relationship of local governments to bankruptcy 
law. This issue is of great concern to many local governments in Utah, 
including Salt Lake City. We need to review how the priority provisions 
of the code impact our local governments as they are increasingly drawn 
into the bankruptcy process.
  In coming to an agreement on the provisions contained in H.R. 5116, 
the House and the Senate have agreed to eliminate section 205 of S. 
540, the Senate-passed bill. Section 205 provided that, unless a 
landlord obtain a stay pending appeal, the reversal or modification of 
an assignment of a lease will have no effect on a good faith assignee. 
While there is some disagreement as to the proper interpretation and 
implementation of the bankruptcy code in this area, I believe that the 
decision in in re Slocum was correct in its analysis of the law.
  The House has added a new provision, section 216, to the Bankruptcy 
Reform Act and I would like to clarify my belief as to the purpose and 
intent of including this section. It is my understanding that the 
current statute of limitations contained in section 546(a) of title 11 
requires that an avoidance action be brought within 2 years of the 
filing of a chapter 11 petition, even if a trustee or other estate 
representative is subsequently appointed or the case is later 
converted. Thus, under current law, if a trustee or other estate 
representative is appointed after the current 2 year statute of 
limitations expires, any actions which the trustee may discover are 
time-barred. This amendment has arisen from a perceived need to provide 
a period of time for a later appointed bankruptcy estate representative 
to investigate and institute actions.
  This is yet another area of bankruptcy law that has been the subject 
of extensive litigation recently, and I commend the Congress for its 
attention to this problem. This amendment should prevent prejudice 
against potential defendents that would result from having to defend 
stale actions and should encourage estate representative to investigate 
and resolve actions earlier in a bankruptcy case, thus minimizing 
estate expenses and maximizing the value of the estate to all 
creditors.

  On January 1, 1995, the longstanding ``Stock for Debt'' rule, which 
has been a fixture of U.S. tax law for fifty years, will be repealed 
pursuant the terms of the Revenue Reconciliation Act of 1993. The rule 
has been an essential tool for reorganizing and restructuring 
financially troubled companies in Chapter 11. I regret the repeal of 
the ``Stock for Debt'' rule, but the passage of this major bankruptcy 
reform legislation creates the perfect opportunity to reexamine the 
need for tax incentives to rehabilitate troubled companies.
  Currently, the ``Stock for Debt'' rule allows creditors to exchange 
millions of dollars of debt in troubled companies for equity interests 
in those companies, resulting in many new financially viable business 
ventures. If creditors agree to the exchange, they invest in the 
reorganized company's future, reduce the company's debt and preserve 
the jobs of the company's employees.
  The repeal of the ``Stock for Debt'' now means that Chapter 11 
companies that exchange their stock for their debt will, in effect, be 
taxed on the differences between the value of the debt forgiven and the 
value of the stock received by the creditors. This tax liability will 
be satisfied by reducing the reorganized company's tax attributes--such 
as reducing the company's net operating losses or its tax basis in 
assets. By reducing these tax attributes, the creditors will be 
investing in a reorganized company that is worth much less. Thus, 
creditors will be less likely to exchange debt for stock or will demand 
more for the exchange. The reorganized company will be weakened--or its 
reorganization will fail--all to the severe detriment of its employees.
  The reinstatement of the ``Stock for Debt'' exception is crucial to 
the hundreds of thousands of Americans whose jobs may be on the line in 
the months and years ahead as companies attempt to restructure. The 
``Stock for Debt'' exception may make the difference between a 
company's survival or its failure. More important, for employees of the 
affected company, it could mean the difference between continued 
employment and unemployment.
  The repeal of the ``Stock for Debt'' rule raises serious questions 
for those of us concerned with bankruptcy policy. As a matter of public 
policy, both our Bankruptcy Code and tax laws have traditionally 
favored the rehabilitation of troubled companies over their 
liquidation. Unfortunately, the Congress has deviated from our 
longstanding policy with the elimination of the ``Stock for Debt'' 
rule.
  Mr. President, I urge my colleagues on both the Judiciary and Finance 
Committees to join me in efforts in the 104th Congress to review the 
need for tax incentives to rehabilitate troubled companies as well as 
other aspects of bankruptcy taxation.
  Finally, let me again express my appreciation to Senators Heflin and 
Grassley for their fine leadership in crafting a bankruptcy bill 
acceptable to the Senate, to consumers, and to the entire bankruptcy 
community. I commend them for their untiring efforts and I look forward 
to working with them on bankruptcy tax issues in the next Congress.

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