[Congressional Record Volume 148, Number 151 (Wednesday, November 20, 2002)]
[Senate]
[Pages S11728-S11729]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




    EFFECTIVE DATE PROVISION OF INVOLUNTARY BANKRUPTCY CLARIFICATION

 Mr. BAUCUS. Mr. President, we are all aware that last Thursday 
the House failed to pass the conference report on H.R. 333, the 
bankruptcy reform measure. Further, failing to pass H.R. 333, the 
version of bankruptcy reform that the House did pass last Friday was 
not taken up for Senate consideration this past week for several 
reasons. However there are much needed reforms in the bankruptcy bill 
and one in particular that I would like to discuss today.
  It is my understanding that the final bill passed by the House did 
contain a number of technical corrections that were agreed to on a 
bipartisan, bicameral basis after inadvertent drafting errors were 
discovered following the conclusion of the work of the conference 
committee on H.R. 333. One such error involved the effective date 
provision of section 1234. Section 1234 was not a new provision of law 
but a reiteration of current law. This section made clear that a claim 
that is in bona fide dispute over the existence of liability, or the 
amount of that liability, cannot be used as the basis for bringing an 
involuntary bankruptcy action. This clarification is consistent with 
the 1984 legislative history of this portion of Section 303 of the 
Bankruptcy Code. It also tracks the decisions of all five Courts of 
Appeal that have ruled on the bona fide dispute bar to the bringing of 
involuntary bankruptcy actions.
  Section 1234 restated and strengthened congressional intent that an 
involuntary bankruptcy action should not be employed by litigants 
seeking to gain more leverage than they would have if they disputed 
contract performance in the proper judicial forum. The respondent in a 
bona fide dispute over liability for a claim or the amount thereof 
should not be disadvantaged by the stigma and expense of an involuntary 
bankruptcy proceeding, nor should our overcrowded bankruptcy courts be 
burdened with such disputes. In as much as section 1234 restated 
existing law, it was given immediate effect upon enactment--but, due to 
a drafting error, it would not have applied to cases now pending before 
the bankruptcy courts. This mistake would have had a particularly 
perverse effect in the five Federal circuits that have correctly ruled 
that bona fide dispute standard applies to both liability and the 
amount thereof; no circuit court has reached a contrary conclusion.
  As soon as the conferees became aware of this mistake, they worked to 
fashion a correction contained in a concurrent resolution to be adopted 
simultaneously with the conference report. That and other enrolling 
changes were incorporated in the bankruptcy bill passed by the House 
last Friday. The involuntary bankruptcy provision was contained in 
section 1233 of that measure, which stated that ``This section and the 
amendments made by this

[[Page S11729]]

section shall take effect on the date of enactment of this Act and 
shall apply with respect to cases commenced under Title 11 of the 
United States Code before, on, and after such a date.''
  As the author of both the 1984 amendment that established the bona 
fide dispute proviso of section 303 of the Code and 2001 Senate 
amendment that became section 1234 of the conference report and section 
1233 of the House-passed bill, I intend to seek to secure the same 
clarification and reiteration of current law in the 108th 
Congress.

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