[Congressional Record Volume 149, Number 46 (Friday, March 21, 2003)]
[Extensions of Remarks]
[Page E551]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




    BANKRUPTCY ABUSE PREVENTION AND CONSUMER PROTECTION ACT OF 2003

                                 ______
                                 

                               speech of

                         HON. LUIS V. GUTIERREZ

                              of illinois

                    in the house of representatives

                       Wednesday, March 19, 2003

       The House in Committee of the Whole House on the State of 
     the Union had under consideration the bill (H.R. 975) to 
     amend title 11 of the United States Code, and for other 
     proposes:
  Mr. GUTIERREZ. Mr. Chairman, I am pleased that yesterday, during 
consideration of H.R. 975, the House agreed to an amendment I offered 
to Section 1234. As amended, Section 1234 will assure that all 
companies forced into involuntary bankruptcy receive the protection of 
the bona fide dispute standard in the manner that Congress has intended 
since its adoption in 1984.
  Mr. Chairman, I would like to explain that my amendment changed the 
effective date in the involuntary bankruptcy provision of H.R. 975 also 
known as Section 1234. My amendment is identical to language that was 
included in the corresponding provision, Section 1233 of H.R. 5745, the 
bankruptcy reform bill passed by the House on November 15, 2002.
  My amendment was a purely technical correction. Section 1234 is not 
new law but a clarifying restatement of Section 303 of the Bankruptcy 
Code, which sets the rules for involuntary cases since 1984. The 
purpose of the 1984 language was to bar bringing involuntary bankruptcy 
action in cases which where already subject of a ``bona fide dispute'' 
on either the existence of liability or the amount of that liability.
  The purpose of the bona fide dispute standard is to prevent our 
overcrowded bankruptcy courts from being burdened with ordinary 
contract performance disputes filed as involuntary cases by forum-
shopping litigants, seeking to gain undue leverage by forcing their 
counterparty into bankruptcy.
  Ordinary contract disputes are contested on a level playing field 
when they are litigated in the proper forum of a civil court. And if 
they civil court issues a binding judgment regarding the amount that 
truly is due, a bona fide dispute no longer exists and an involuntary 
case may be initiated. But when trade creditors--especially separate 
affiliates of the same corporation--decline to bring a civil suit, and 
instead collude to force a debtor company into bankruptcy to gain an 
unfair advantage regarding bona fide contract disputes over contested 
amounts claimed to be due, it can be devastating. That devastation is 
particularly acute for a small business.
  As soon as news of the bankruptcy gets out its employees may begin to 
explore other job opportunities, its suppliers start to demand cash on 
delivery rather than continue to abide by their standard credit and 
repayment terms, and its customers start to wonder if they can rely on 
that business into the future. The company pushed into involuntary 
bankruptcy is therefore put under tremendous pressure to settle the 
disputed matter on plantiffs' terms, quickly, regardless of the 
merits.''
  There has been no confusion regarding the interpretation of the bona 
fide dispute standard at the appellate level, as all five federal 
appeals courts that have ruled on its scope have agreed that it covers 
both the questions of whether liability exists and the amount of that 
liability.
  All that Section 1234 does is insert the term ``as to liability or 
amount'' into the Code so as to prevent any further misunderstanding on 
this matter by a small minority of bankruptcy judges. My amendment 
makes sure that Section 1234 apply with respect to all involuntary 
bankruptcy cases, regardless of whether or not the liability or the 
amount which is the object of the dispute.