[Congressional Record Volume 162, Number 55 (Tuesday, April 12, 2016)]
[House]
[Pages H1605-H1610]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
{time} 1645
FINANCIAL INSTITUTION BANKRUPTCY ACT OF 2016
Mr. GOODLATTE. Mr. Speaker, I move to suspend the rules and pass the
bill (H.R. 2947) to amend title 11 of the United States Code in order
to facilitate the resolution of an insolvent financial institution in
bankruptcy, as amended.
The Clerk read the title of the bill.
The text of the bill is as follows:
H.R. 2947
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Financial Institution
Bankruptcy Act of 2016''.
SEC. 2. GENERAL PROVISIONS RELATING TO COVERED FINANCIAL
CORPORATIONS.
(a) Definition.--Section 101 of title 11, United States
Code, is amended by inserting the following after paragraph
(9):
``(9A) The term `covered financial corporation' means any
corporation incorporated or organized under any Federal or
State law, other than a stockbroker, a commodity broker, or
an entity of the kind specified in paragraph (2) or (3) of
section 109(b), that is--
``(A) a bank holding company, as defined in section 2(a) of
the Bank Holding Company Act of 1956; or
``(B) a corporation that exists for the primary purpose of
owning, controlling and financing its subsidiaries, that has
total consolidated assets of $50,000,000,000 or greater, and
for which, in its most recently completed fiscal year--
``(i) annual gross revenues derived by the corporation and
all of its subsidiaries from activities that are financial in
nature (as defined in section 4(k) of the Bank Holding
Company Act of 1956) and, if applicable, from the ownership
or control of one or more insured depository institutions,
represents 85 percent or more of the consolidated annual
gross revenues of the corporation; or
``(ii) the consolidated assets of the corporation and all
of its subsidiaries related to activities that are financial
in nature (as defined in section 4(k) of the Bank Holding
Company Act of 1956) and, if applicable, related to the
ownership or control of one or more insured depository
institutions, represents 85 percent or more of the
consolidated assets of the corporation.''.
(b) Applicability of Chapters.--Section 103 of title 11,
United States Code, is amended by adding at the end the
following:
``(l) Subchapter V of chapter 11 of this title applies only
in a case under chapter 11 concerning a covered financial
corporation.''.
(c) Who May Be a Debtor.--Section 109 of title 11, United
States Code, is amended--
(1) in subsection (b)--
(A) in paragraph (2), by striking ``or'' at the end;
(B) in paragraph (3)(B), by striking the period at the end
and inserting ``; or''; and
(C) by adding at the end the following:
``(4) a covered financial corporation.''; and
(2) in subsection (d)--
(A) by striking ``and'' before ``an uninsured State member
bank'';
(B) by striking ``or'' before ``a corporation''; and
(C) by inserting ``, or a covered financial corporation''
after ``Federal Deposit Insurance Corporation Improvement Act
of 1991''.
(d) Conversion to Chapter 7.--Section 1112 of title 11,
United States Code, is amended by adding at the end the
following:
``(g) Notwithstanding section 109(b), the court may convert
a case under subchapter V to a case under chapter 7 if--
``(1) a transfer approved under section 1185 has been
consummated;
``(2) the court has ordered the appointment of a special
trustee under section 1186; and
``(3) the court finds, after notice and a hearing, that
conversion is in the best interest of the creditors and the
estate.''.
(e)(1) Section 726(a)(1) of title 11, United States Code,
is amended by inserting after ``first,'' the following: ``in
payment of any unpaid fees, costs, and expenses of a special
trustee appointed under section 1186, and then''.
(2) Section 1129(a) of title 11, United States Code, is
amended by inserting after paragraph (16) the following:
``(17) In a case under subchapter V, all payable fees,
costs, and expenses of the special trustee have been paid or
the plan provides for the payment of all such fees, costs,
and expenses on the effective date of the plan.
``(18) In a case under subchapter V, confirmation of the
plan is not likely to cause serious adverse effects on
financial stability in the United States.''.
(f) Section 322(b)(2) of title 11, United States Code, is
amended by striking ``The'' and inserting ``In cases under
subchapter V, the United States trustee shall recommend to
the court, and in all other cases, the''.
SEC. 3. LIQUIDATION, REORGANIZATION, OR RECAPITALIZATION OF A
COVERED FINANCIAL CORPORATION.
Chapter 11 of title 11, United States Code, is amended by
adding at the end the following:
``SUBCHAPTER V--LIQUIDATION, REORGANIZATION, OR RECAPITALIZATION OF A
COVERED FINANCIAL CORPORATION
``Sec. 1181. Inapplicability of other sections
``Sections 303 and 321(c) do not apply in a case under this
subchapter concerning a covered financial corporation.
Section 365 does not apply to a transfer under section 1185,
1187, or 1188.
``Sec. 1182. Definitions for this subchapter
``In this subchapter, the following definitions shall
apply:
``(1) The term `Board' means the Board of Governors of the
Federal Reserve System.
``(2) The term `bridge company' means a newly formed
corporation to which property of
[[Page H1606]]
the estate may be transferred under section 1185(a) and the
equity securities of which may be transferred to a special
trustee under section 1186(a).
``(3) The term `capital structure debt' means all unsecured
debt of the debtor for borrowed money for which the debtor is
the primary obligor, other than a qualified financial
contract and other than debt secured by a lien on property of
the estate that is to be transferred to a bridge company
pursuant to an order of the court under section 1185(a).
``(4) The term `contractual right' means a contractual
right of a kind defined in section 555, 556, 559, 560, or
561.
``(5) The term `qualified financial contract' means any
contract of a kind defined in paragraph (25), (38A), (47), or
(53B) of section 101, section 741(7), or paragraph (4), (5),
(11), or (13) of section 761.
``(6) The term `special trustee' means the trustee of a
trust formed under section 1186(a)(1).
``Sec. 1183. Commencement of a case concerning a covered
financial corporation
``(a) A case under this subchapter concerning a covered
financial corporation may be commenced by the filing of a
petition with the court by the debtor under section 301 only
if the debtor states to the best of its knowledge under
penalty of perjury in the petition that it is a covered
financial corporation.
``(b) The commencement of a case under subsection (a)
constitutes an order for relief under this subchapter.
``(c) The members of the board of directors (or body
performing similar functions) of a covered financial company
shall have no liability to shareholders, creditors, or other
parties in interest for a good faith filing of a petition to
commence a case under this subchapter, or for any reasonable
action taken in good faith in contemplation of or in
connection with such a petition or a transfer under section
1185 or section 1186, whether prior to or after commencement
of the case.
``(d) Counsel to the debtor shall provide, to the greatest
extent practicable without disclosing the identity of the
potential debtor, sufficient confidential notice to the chief
judge of the court of appeals for the circuit embracing the
district in which such counsel intends to file a petition to
commence a case under this subchapter regarding the potential
commencement of such case. The chief judge of such court
shall randomly assign to preside over such case a bankruptcy
judge selected from among the bankruptcy judges designated by
the Chief Justice of the United States under section 298 of
title 28.
``Sec. 1184. Regulators
``The Board, the Securities Exchange Commission, the Office
of the Comptroller of the Currency of the Department of the
Treasury, the Commodity Futures Trading Commission, and the
Federal Deposit Insurance Corporation may raise and may
appear and be heard on any issue in any case or proceeding
under this subchapter.
``Sec. 1185. Special transfer of property of the estate
``(a) On request of the trustee, and after notice and a
hearing that shall occur not less than 24 hours after the
order for relief, the court may order a transfer under this
section of property of the estate, and the assignment of
executory contracts, unexpired leases, and qualified
financial contracts of the debtor, to a bridge company. Upon
the entry of an order approving such transfer, any property
transferred, and any executory contracts, unexpired leases,
and qualified financial contracts assigned under such order
shall no longer be property of the estate. Except as provided
under this section, the provisions of section 363 shall apply
to a transfer and assignment under this section.
``(b) Unless the court orders otherwise, notice of a
request for an order under subsection (a) shall consist of
electronic or telephonic notice of not less than 24 hours
to--
``(1) the debtor;
``(2) the holders of the 20 largest secured claims against
the debtor;
``(3) the holders of the 20 largest unsecured claims
against the debtor;
``(4) counterparties to any debt, executory contract,
unexpired lease, and qualified financial contract requested
to be transferred under this section;
``(5) the Board;
``(6) the Federal Deposit Insurance Corporation;
``(7) the Secretary of the Treasury and the Office of the
Comptroller of the Currency of the Treasury;
``(8) the Commodity Futures Trading Commission;
``(9) the Securities and Exchange Commission;
``(10) the United States trustee or bankruptcy
administrator; and
``(11) each primary financial regulatory agency, as defined
in section 2(12) of the Dodd-Frank Wall Street Reform and
Consumer Protection Act, with respect to any affiliate the
equity securities of which are proposed to be transferred
under this section.
``(c) The court may not order a transfer under this section
unless the court determines, based upon a preponderance of
the evidence, that--
``(1) the transfer under this section is necessary to
prevent serious adverse effects on financial stability in the
United States;
``(2) the transfer does not provide for the assumption of
any capital structure debt by the bridge company;
``(3) the transfer does not provide for the transfer to the
bridge company of any property of the estate that is subject
to a lien securing a debt, executory contract, unexpired
lease or agreement (including a qualified financial contract)
of the debtor unless--
``(A)(i) the bridge company assumes such debt, executory
contract, unexpired lease or agreement (including a qualified
financial contract), including any claims arising in respect
thereof that would not be allowed secured claims under
section 506(a)(1) and after giving effect to such transfer,
such property remains subject to the lien securing such debt,
executory contract, unexpired lease or agreement (including a
qualified financial contract); and
``(ii) the court has determined that assumption of such
debt, executory contract, unexpired lease or agreement
(including a qualified financial contract) by the bridge
company is in the best interests of the estate; or
``(B) such property is being transferred to the bridge
company in accordance with the provisions of section 363;
``(4) the transfer does not provide for the assumption by
the bridge company of any debt, executory contract, unexpired
lease or agreement (including a qualified financial contract)
of the debtor secured by a lien on property of the estate
unless the transfer provides for such property to be
transferred to the bridge company in accordance with
paragraph (3)(A) of this subsection;
``(5) the transfer does not provide for the transfer of the
equity of the debtor;
``(6) the trustee has demonstrated that the bridge company
is not likely to fail to meet the obligations of any debt,
executory contract, qualified financial contract, or
unexpired lease assumed and assigned to the bridge company;
``(7) the transfer provides for the transfer to a special
trustee all of the equity securities in the bridge company
and appointment of a special trustee in accordance with
section 1186;
``(8) after giving effect to the transfer, adequate
provision has been made for the fees, costs, and expenses of
the estate and special trustee; and
``(9) the bridge company will have governing documents, and
initial directors and senior officers, that are in the best
interest of creditors and the estate.
``(d) Immediately before a transfer under this section, the
bridge company that is the recipient of the transfer shall--
``(1) not have any property, executory contracts, unexpired
leases, qualified financial contracts, or debts, other than
any property acquired or executory contracts, unexpired
leases, or debts assumed when acting as a transferee of a
transfer under this section; and
``(2) have equity securities that are property of the
estate, which may be sold or distributed in accordance with
this title.
``Sec. 1186. Special trustee
``(a)(1) An order approving a transfer under section 1185
shall require the trustee to transfer to a qualified and
independent special trustee, who is appointed by the court,
all of the equity securities in the bridge company that is
the recipient of a transfer under section 1185 to hold in
trust for the sole benefit of the estate, subject to
satisfaction of the special trustee's fees, costs, and
expenses. The trust of which the special trustee is the
trustee shall be a newly formed trust governed by a trust
agreement approved by the court as in the best interests of
the estate, and shall exist for the sole purpose of holding
and administering, and shall be permitted to dispose of, the
equity securities of the bridge company in accordance with
the trust agreement.
``(2) In connection with the hearing to approve a transfer
under section 1185, the trustee shall confirm to the court
that the Board has been consulted regarding the identity of
the proposed special trustee and advise the court of the
results of such consultation.
``(b) The trust agreement governing the trust shall
provide--
``(1) for the payment of the fees, costs, expenses, and
indemnities of the special trustee from the assets of the
debtor's estate;
``(2) that the special trustee provide--
``(A) quarterly reporting to the estate, which shall be
filed with the court; and
``(B) information about the bridge company reasonably
requested by a party in interest to prepare a disclosure
statement for a plan providing for distribution of any
securities of the bridge company if such information is
necessary to prepare such disclosure statement;
``(3) that for as long as the equity securities of the
bridge company are held by the trust, the special trustee
shall file a notice with the court in connection with--
``(A) any change in a director or senior officer of the
bridge company;
``(B) any modification to the governing documents of the
bridge company; and
``(C) any material corporate action of the bridge company,
including--
``(i) recapitalization;
``(ii) a material borrowing;
``(iii) termination of an intercompany debt or guarantee;
``(iv) a transfer of a substantial portion of the assets of
the bridge company; or
``(v) the issuance or sale of any securities of the bridge
company;
``(4) that any sale of any equity securities of the bridge
company shall not be consummated until the special trustee
consults with the Federal Deposit Insurance Corporation and
the Board regarding such sale and discloses the results of
such consultation with the court;
``(5) that, subject to reserves for payments permitted
under paragraph (1) provided for in the trust agreement, the
proceeds of the sale of any equity securities of the bridge
company by the special trustee be held in trust for the
benefit of or transferred to the estate;
``(6) the process and guidelines for the replacement of the
special trustee; and
``(7) that the property held in trust by the special
trustee is subject to distribution in accordance with
subsection (c).
[[Page H1607]]
``(c)(1) The special trustee shall distribute the assets
held in trust--
``(A) if the court confirms a plan in the case, in
accordance with the plan on the effective date of the plan;
or
``(B) if the case is converted to a case under chapter 7,
as ordered by the court.
``(2) As soon as practicable after a final distribution
under paragraph (1), the office of the special trustee shall
terminate, except as may be necessary to wind up and conclude
the business and financial affairs of the trust.
``(d) After a transfer to the special trustee under this
section, the special trustee shall be subject only to
applicable nonbankruptcy law, and the actions and conduct of
the special trustee shall no longer be subject to approval by
the court in the case under this subchapter.
``Sec. 1187. Temporary and supplemental automatic stay;
assumed debt
``(a)(1) A petition filed under section 1183 operates as a
stay, applicable to all entities, of the termination,
acceleration, or modification of any debt, contract, lease,
or agreement of the kind described in paragraph (2), or of
any right or obligation under any such debt, contract, lease,
or agreement, solely because of--
``(A) a default by the debtor under any such debt,
contract, lease, or agreement; or
``(B) a provision in such debt, contract, lease, or
agreement, or in applicable nonbankruptcy law, that is
conditioned on--
``(i) the insolvency or financial condition of the debtor
at any time before the closing of the case;
``(ii) the commencement of a case under this title
concerning the debtor;
``(iii) the appointment of or taking possession by a
trustee in a case under this title concerning the debtor or
by a custodian before the commencement of the case; or
``(iv) a credit rating agency rating, or absence or
withdrawal of a credit rating agency rating--
``(I) of the debtor at any time after the commencement of
the case;
``(II) of an affiliate during the period from the
commencement of the case until 48 hours after such order is
entered;
``(III) of the bridge company while the trustee or the
special trustee is a direct or indirect beneficial holder of
more than 50 percent of the equity securities of--
``(aa) the bridge company; or
``(bb) the affiliate, if all of the direct or indirect
interests in the affiliate that are property of the estate
are transferred under section 1185; or
``(IV) of an affiliate while the trustee or the special
trustee is a direct or indirect beneficial holder of more
than 50 percent of the equity securities of--
``(aa) the bridge company; or
``(bb) the affiliate, if all of the direct or indirect
interests in the affiliate that are property of the estate
are transferred under section 1185.
``(2) A debt, contract, lease, or agreement described in
this paragraph is--
``(A) any debt (other than capital structure debt),
executory contract, or unexpired lease of the debtor (other
than a qualified financial contract);
``(B) any agreement under which the debtor issued or is
obligated for debt (other than capital structure debt);
``(C) any debt, executory contract, or unexpired lease of
an affiliate (other than a qualified financial contract); or
``(D) any agreement under which an affiliate issued or is
obligated for debt.
``(3) The stay under this subsection terminates--
``(A) for the benefit of the debtor, upon the earliest of--
``(i) 48 hours after the commencement of the case;
``(ii) assumption of the debt, contract, lease, or
agreement by the bridge company under an order authorizing a
transfer under section 1185;
``(iii) a final order of the court denying the request for
a transfer under section 1185; or
``(iv) the time the case is dismissed; and
``(B) for the benefit of an affiliate, upon the earliest
of--
``(i) the entry of an order authorizing a transfer under
section 1185 in which the direct or indirect interests in the
affiliate that are property of the estate are not transferred
under section 1185;
``(ii) a final order by the court denying the request for a
transfer under section 1185;
``(iii) 48 hours after the commencement of the case if the
court has not ordered a transfer under section 1185; or
``(iv) the time the case is dismissed.
``(4) Subsections (d), (e), (f), and (g) of section 362
apply to a stay under this subsection.
``(b) A debt, executory contract (other than a qualified
financial contract), or unexpired lease of the debtor, or an
agreement under which the debtor has issued or is obligated
for any debt, may be assumed by a bridge company in a
transfer under section 1185 notwithstanding any provision in
an agreement or in applicable nonbankruptcy law that--
``(1) prohibits, restricts, or conditions the assignment of
the debt, contract, lease, or agreement; or
``(2) accelerates, terminates, or modifies, or permits a
party other than the debtor to terminate or modify, the debt,
contract, lease, or agreement on account of--
``(A) the assignment of the debt, contract, lease, or
agreement; or
``(B) a change in control of any party to the debt,
contract, lease, or agreement.
``(c)(1) A debt, contract, lease, or agreement of the kind
described in subparagraph (A) or (B) of subsection (a)(2) may
not be accelerated, terminated, or modified, and any right or
obligation under such debt, contract, lease, or agreement may
not be accelerated, terminated, or modified, as to the bridge
company solely because of a provision in the debt, contract,
lease, or agreement or in applicable nonbankruptcy law--
``(A) of the kind described in subsection (a)(1)(B) as
applied to the debtor;
``(B) that prohibits, restricts, or conditions the
assignment of the debt, contract, lease, or agreement; or
``(C) that accelerates, terminates, or modifies, or permits
a party other than the debtor to terminate or modify, the
debt, contract, lease or agreement on account of--
``(i) the assignment of the debt, contract, lease, or
agreement; or
``(ii) a change in control of any party to the debt,
contract, lease, or agreement.
``(2) If there is a default by the debtor under a provision
other than the kind described in paragraph (1) in a debt,
contract, lease or agreement of the kind described in
subparagraph (A) or (B) of subsection (a)(2), the bridge
company may assume such debt, contract, lease, or agreement
only if the bridge company--
``(A) shall cure the default;
``(B) compensates, or provides adequate assurance in
connection with a transfer under section 1185 that the bridge
company will promptly compensate, a party other than the
debtor to the debt, contract, lease, or agreement, for any
actual pecuniary loss to the party resulting from the
default; and
``(C) provides adequate assurance in connection with a
transfer under section 1185 of future performance under the
debt, contract, lease, or agreement, as determined by the
court under section 1185(c)(4).
``Sec. 1188. Treatment of qualified financial contracts and
affiliate contracts
``(a) Notwithstanding sections 362(b)(6), 362(b)(7),
362(b)(17), 362(b)(27), 362(o), 555, 556, 559, 560, and 561,
a petition filed under section 1183 operates as a stay,
during the period specified in section 1187(a)(3)(A),
applicable to all entities, of the exercise of a contractual
right--
``(1) to cause the modification, liquidation, termination,
or acceleration of a qualified financial contract of the
debtor or an affiliate;
``(2) to offset or net out any termination value, payment
amount, or other transfer obligation arising under or in
connection with a qualified financial contract of the debtor
or an affiliate; or
``(3) under any security agreement or arrangement or other
credit enhancement forming a part of or related to a
qualified financial contract of the debtor or an affiliate.
``(b)(1) During the period specified in section
1187(a)(3)(A), the trustee or the affiliate shall perform all
payment and delivery obligations under such qualified
financial contract of the debtor or the affiliate, as the
case may be, that become due after the commencement of the
case. The stay provided under subsection (a) terminates as to
a qualified financial contract of the debtor or an affiliate
immediately upon the failure of the trustee or the affiliate,
as the case may be, to perform any such obligation during
such period.
``(2) Any failure by a counterparty to any qualified
financial contract of the debtor or any affiliate to perform
any payment or delivery obligation under such qualified
financial contract, including during the pendency of the stay
provided under subsection (a), shall constitute a breach of
such qualified financial contract by the counterparty.
``(c) Subject to the court's approval, a qualified
financial contract between an entity and the debtor may be
assigned to or assumed by the bridge company in a transfer
under, and in accordance with, section 1185 if and only if--
``(1) all qualified financial contracts between the entity
and the debtor are assigned to and assumed by the bridge
company in the transfer under section 1185;
``(2) all claims of the entity against the debtor in
respect of any qualified financial contract between the
entity and the debtor (other than any claim that, under the
terms of the qualified financial contract, is subordinated to
the claims of general unsecured creditors) are assigned to
and assumed by the bridge company;
``(3) all claims of the debtor against the entity under any
qualified financial contract between the entity and the
debtor are assigned to and assumed by the bridge company; and
``(4) all property securing or any other credit enhancement
furnished by the debtor for any qualified financial contract
described in paragraph (1) or any claim described in
paragraph (2) or (3) under any qualified financial contract
between the entity and the debtor is assigned to and assumed
by the bridge company.
``(d) Notwithstanding any provision of a qualified
financial contract or of applicable nonbankruptcy law, a
qualified financial contract of the debtor that is assumed or
assigned in a transfer under section 1185 may not be
accelerated, terminated, or modified, after the entry of the
order approving a transfer under section 1185, and any right
or obligation under the qualified financial contract may not
be accelerated, terminated, or modified, after the entry of
the order approving a transfer under section 1185 solely
because of a condition described in section 1187(c)(1), other
than a condition of the kind specified in section 1187(b)
that occurs after property of the estate no longer includes a
direct beneficial interest or an indirect beneficial interest
through the special trustee, in more than 50 percent of the
equity securities of the bridge company.
``(e) Notwithstanding any provision of any agreement or in
applicable nonbankruptcy law, an agreement of an affiliate
(including an executory contract, an unexpired lease,
qualified financial contract, or an agreement under which the
affiliate issued or is obligated for debt) and any right or
obligation under such agreement may not be accelerated,
terminated, or modified, solely because of a condition
described in section 1187(c)(1), other than a condition of
the
[[Page H1608]]
kind specified in section 1187(b) that occurs after the
bridge company is no longer a direct or indirect beneficial
holder of more than 50 percent of the equity securities of
the affiliate, at any time after the commencement of the case
if--
``(1) all direct or indirect interests in the affiliate
that are property of the estate are transferred under section
1185 to the bridge company within the period specified in
subsection (a);
``(2) the bridge company assumes--
``(A) any guarantee or other credit enhancement issued by
the debtor relating to the agreement of the affiliate; and
``(B) any obligations in respect of rights of setoff,
netting arrangement, or debt of the debtor that directly
arises out of or directly relates to the guarantee or credit
enhancement; and
``(3) any property of the estate that directly serves as
collateral for the guarantee or credit enhancement is
transferred to the bridge company.
``Sec. 1189. Licenses, permits, and registrations
``(a) Notwithstanding any otherwise applicable
nonbankruptcy law, if a request is made under section 1185
for a transfer of property of the estate, any Federal, State,
or local license, permit, or registration that the debtor or
an affiliate had immediately before the commencement of the
case and that is proposed to be transferred under section
1185 may not be accelerated, terminated, or modified at any
time after the request solely on account of--
``(1) the insolvency or financial condition of the debtor
at any time before the closing of the case;
``(2) the commencement of a case under this title
concerning the debtor;
``(3) the appointment of or taking possession by a trustee
in a case under this title concerning the debtor or by a
custodian before the commencement of the case; or
``(4) a transfer under section 1185.
``(b) Notwithstanding any otherwise applicable
nonbankruptcy law, any Federal, State, or local license,
permit, or registration that the debtor had immediately
before the commencement of the case that is included in a
transfer under section 1185 shall be valid and all rights and
obligations thereunder shall vest in the bridge company.
``Sec. 1190. Exemption from securities laws
``For purposes of section 1145, a security of the bridge
company shall be deemed to be a security of a successor to
the debtor under a plan if the court approves the disclosure
statement for the plan as providing adequate information (as
defined in section 1125(a)) about the bridge company and the
security.
``Sec. 1191. Inapplicability of certain avoiding powers
``A transfer made or an obligation incurred by the debtor
to an affiliate prior to or after the commencement of the
case, including any obligation released by the debtor or the
estate to or for the benefit of an affiliate, in
contemplation of or in connection with a transfer under
section 1185 is not avoidable under section 544, 547,
548(a)(1)(B), or 549, or under any similar nonbankruptcy law.
``Sec. 1192. Consideration of financial stability
``The court may consider the effect that any decision in
connection with this subchapter may have on financial
stability in the United States.''.
SEC. 4. AMENDMENTS TO TITLE 28, UNITED STATES CODE.
(a) Amendment to Chapter 13.--Chapter 13 of title 28,
United States Code, is amended by adding at the end the
following:
``Sec. 298. Judge for a case under subchapter V of chapter 11
of title 11
``(a)(1) Notwithstanding section 295, the Chief Justice of
the United States shall designate not fewer than 10
bankruptcy judges to be available to hear a case under
subchapter V of chapter 11 of title 11. Bankruptcy judges may
request to be considered by the Chief Justice of the United
States for such designation.
``(2) Notwithstanding section 155, a case under subchapter
V of chapter 11 of title 11 shall be heard under section 157
by a bankruptcy judge designated under paragraph (1), who
shall be randomly assigned to hear such case by the chief
judge of the court of appeals for the circuit embracing the
district in which the case is pending. To the greatest extent
practicable, the approvals required under section 155 should
be obtained.
``(3) If the bankruptcy judge assigned to hear a case under
paragraph (2) is not assigned to the district in which the
case is pending, the bankruptcy judge shall be temporarily
assigned to the district.
``(b) A case under subchapter V of chapter 11 of title 11,
and all proceedings in the case, shall take place in the
district in which the case is pending.
``(c) In this section, the term `covered financial
corporation' has the meaning given that term in section
101(9A) of title 11.''.
(b) Amendment to Section 1334 of Title 28.--Section 1334 of
title 28, United States Code, is amended by adding at the end
the following:
``(f) This section does not grant jurisdiction to the
district court after a transfer pursuant to an order under
section 1185 of title 11 of any proceeding related to a
special trustee appointed, or to a bridge company formed, in
connection with a case under subchapter V of chapter 11 of
title 11.''.
(c) Technical and Conforming Amendment.--The table of
sections for chapter 13 of title 28, United States Code, is
amended by adding at the end the following:
``298. Judge for a case under subchapter V of chapter 11 of title
11.''.
The SPEAKER pro tempore. Pursuant to the rule, the gentleman from
Virginia (Mr. Goodlatte) and the gentleman from Georgia (Mr. Johnson)
each will control 20 minutes.
The Chair recognizes the gentleman from Virginia.
General Leave
Mr. GOODLATTE. Mr. Speaker, I ask unanimous consent that all Members
may have 5 legislative days within which to revise and extend their
remarks and to include extraneous materials on H.R. 2947, currently
under consideration.
The SPEAKER pro tempore. Is there objection to the request of the
gentleman from Virginia?
There was no objection.
Mr. GOODLATTE. Mr. Speaker, I yield myself such time as I may
consume.
In 2008, our economy suffered one of the most significant financial
crises in history. In the midst of the crisis and in response to a fear
that some financial firms' failures could cause severe harm to the
overall economy, the Federal Government provided extraordinary
taxpayer-funded assistance in order to prevent certain financial firms'
failures. In the ensuing years, experts from the financial, regulatory,
legal, and academic communities examined how best to prevent another
similar crisis from occurring and how to eliminate the possibility of
using taxpayer moneys to bail out failing firms.
The Judiciary Committee has advanced the review of this issue with
the aim of crafting a solution that will better equip our bankruptcy
laws to resolve failing firms while also encouraging greater private
counterparty diligence in order to reduce the likelihood of another
financial crisis. Among other things, this responded to provisions of
the Dodd-Frank Wall Street Reform and Consumer Protection Act, which
called for an examination of how to improve the Bankruptcy Code in this
area.
Last Congress, after three hearings, the Judiciary Committee
favorably reported the Financial Institution Bankruptcy Act, which is
legislation that improved the Bankruptcy Code to better facilitate the
resolution of a financial firm. That legislation was the culmination of
a bipartisan process that solicited and incorporated the views of a
wide range of leading experts and relevant regulators. The bill
ultimately passed the House by a voice vote under a suspension of the
rules.
This Congress, Representative Trott reintroduced the Financial
Institution Bankruptcy Act as H.R. 2947. Following its introduction,
the Subcommittee on Regulatory Reform, Commercial and Antitrust Law
conducted a hearing on the bill. The hearing witnesses all supported
the legislation while providing recommendations for further refinements
to the bill. Those recommendations were incorporated, and the Judiciary
Committee approved the legislation by a unanimous vote of 25-0.
The bill under consideration today is the product of a careful,
deliberate, and thorough process, and it reflects a diverse range of
views from a variety of interested parties. The Financial Institution
Bankruptcy Act makes several improvements to the Bankruptcy Code in
order to enhance the prospect of the efficient resolution of a
financial firm through the bankruptcy process.
The bill allows for the speedy transfer of a financial firm's
operating assets over the course of a weekend. This quick transfer
allows the financial firm to continue to operate in the normal course,
which preserves the value of the enterprise for the creditors of the
bankruptcy without there being any significant impact on the firm's
employees, suppliers, and customers.
The bill also requires expedited judicial review by a bankruptcy
judge who has been randomly chosen from a pool of judges, who has been
designated in advance, and who has been selected by the chief justice
for his experience, expertise, and willingness to preside over these
complex cases. Furthermore, the legislation provides for key regulatory
input throughout the process.
The Financial Institution Bankruptcy Act is a bipartisan, balanced
approach that increases transparency and predictability in the
resolution of a financial firm. Furthermore, it ensures that
shareholders and creditors, not taxpayers, bear the losses related to
the failure of a financial company.
I am pleased that Ranking Member Conyers is a lead sponsor of this
important legislation, and I thank him
[[Page H1609]]
and his staff for their efforts in developing this bill. I thank
Representative Trott for introducing this important legislation, and I
thank Chairman Marino of the Subcommittee on Regulatory Reform,
Commercial and Antitrust Law, who is one of the original sponsors of
the bill and who helped to usher the bill through the Judiciary
Committee. I also commend my colleague from Georgia, who is also
involved in this work and who is the ranking member of that same
subcommittee.
I urge my colleagues to vote in favor of this important legislation.
I reserve the balance of my time.
Mr. JOHNSON of Georgia. Mr. Speaker, I yield myself such time as I
may consume.
H.R. 2947, the Financial Institution Bankruptcy Act of 2016, amends
the Bankruptcy Code to establish a process for the expedited judicial
resolution of large financial institutions in order to soften the
disruptive effects of their collapse.
As we all know, the Great Recession was triggered by the widespread
issuance and limited regulation of high-risk and, possibly, fraudulent
mortgage-backed securities. Fueled by adjustable rate and predatory
subprime mortgages, these securities were issued without regard to
careful underwriting standards, caused a housing bubble that trapped
countless homeowners in unaffordable mortgages, and led to a massive
wave of foreclosures that resulted in the worst financial crisis since
the Great Depression. In the wake of this crisis, the President signed
the Dodd-Frank Act into law so as to provide comprehensive measures to
reduce systemic risk through heightened financial stability
requirements for large financial institutions.
Among many other requirements, title I of Dodd-Frank requires that
certain large financial institutions have living wills to ensure a
rapid and orderly resolution in the event of material distress or
failure. Title II of the law provides for an administrative process to
wind down these institutions so as to avoid adverse effects on the
entire financial system; but there is no such process under the current
bankruptcy law.
I applaud Congressman Trott and the chairman of the full committee,
Chairman Goodlatte, for addressing this concern by offering this
legislation to revise the Bankruptcy Code in order to establish a
specialized form of bankruptcy relief that would facilitate the
expeditious resolution of large financial institutions and would
minimize the disruptive impact of a company's collapse on the financial
system. The legislation largely accomplishes this goal by establishing
a resolution process that authorizes a court to provide relief by
transferring a debtor's assets to a bridge company, under an expedited
timeline, while minimizing the adverse effects of the bankruptcy on the
financial system.
While these aspects of the bill are commendable, I remain concerned,
however, that this legislation lacks a funding mechanism that would
allow the Federal Government to provide liquidity to the company, which
is a key difference between an orderly resolution under Dodd-Frank and
the resolution contemplated by H.R. 2947.
In a typical bankruptcy case, the debtor's reorganization may be
funded by private parties or by the Federal Government, as illustrated
by the General Motors bankruptcy. In many instances, liquidity provided
by the U.S. Government to prevent the collapse of a financial
institution has either returned a profit to the taxpayers or is likely
to be repaid.
Leading bankruptcy experts have found that providing liquidity to
distressed financial institutions ``is essential to successfully
resolving the firm without creating undue systemic risk.'' This
critical mechanism has prevented the collapses of several major
financial institutions without cost to the taxpayer.
Lastly, I would caution against efforts to combine H.R. 2947 with
legislation that would strike title II of the Dodd-Frank Act. As the
National Bankruptcy Conference has observed, laws that are currently in
place, such as title II of the Dodd-Frank Act, should remain in effect
because the ability of U.S. regulators to assume full control of the
resolution process to elicit the cooperation from non-U.S. regulators
is an essential insurance policy against systemic risk and potential
conflict and dysfunction among the multinational components of these
institutions. I would also note that title II of the Dodd-Frank Act
will serve as a valuable backstop to the bankruptcy process should this
bill become law.
Notwithstanding these concerns, I thank, once again, the gentleman
from Virginia, the gentleman from Michigan, and also my friend and
chair of the relevant subcommittee, Tom Marino from Pennsylvania, for
their leadership on this issue and for the bipartisan process in
developing this legislation. I also thank the Democratic and Republican
counsel of the Judiciary Committee, Susan Jensen and Anthony Grossi,
for their tireless work and substantive expertise in developing this
legislation.
I reserve the balance of my time.
Mr. GOODLATTE. Mr. Speaker, it is my pleasure to yield such time as
he may consume to the gentleman from Michigan (Mr. Trott), the chief
sponsor of the legislation.
Mr. TROTT. I thank my colleagues Chairman Goodlatte, Ranking Member
Conyers, and my friend from Georgia for their support of this important
legislation. I also thank the other Members and the staff who have
helped shape this bipartisan bill.
Mr. Speaker, the American people are frustrated with their
government. While families are working hard, are paying their taxes,
and are doing their best to keep the American Dream alive, Washington
decides to spend money it doesn't have on problems it shouldn't solve.
Suffice it to say, both parties have proven to be bad stewards of our
Nation's finances.
Many of us were disappointed to see $700 billion in taxpayer money
spent on bailing out failed financial institutions in 2008. The
American people should not be on the hook for the failures of bad
business practices. The American people entrusted us with their tax
dollars, and Washington used the money to bail out banks. We cannot let
this happen again. The legislation we are considering today is aimed at
protecting American taxpayers and at reducing the risk of another
taxpayer-funded bailout.
The Financial Institution Bankruptcy Act protects taxpayers by
reforming the process of how failing banks go through bankruptcy
proceedings. We have incorporated the recommendations of hearing
witnesses, regulators, and experts from four Judiciary Committee
hearings over the past 2 years. This effort is, truly, the product of
bipartisan work and compromise.
Under this bill, the process will be handled by an experienced
judge--a judge who knows how to handle the complex reorganizations of
financial institutions. It will also result in a transparent judicial
process instead of there being a group of bank CEOs and regulators that
meets in a back room in order to decide how to save a failing bank. It
will ensure that shareholders and creditors are at risk when a
financial institution fails, not the American taxpayer. Further,
decades of case law and precedent will ensure a fair result.
This bill is the kind of commonsense legislation that, I believe,
offers important solutions, that protects the American people, and that
is deserving of strong bipartisan support. I encourage all of my
colleagues to support this effort. Let's pass this bill and move it to
the Senate for consideration.
{time} 1700
Mr. GOODLATTE. Mr. Speaker, I only have one speaker remaining,
myself, to close. So I am prepared to do that once the gentleman from
Georgia yields back.
I reserve the balance of my time.
Mr. JOHNSON of Georgia. Mr. Speaker, I ask that my colleagues pass
this measure.
I yield back the remainder of my time.
Mr. GOODLATTE. Mr. Speaker, the Financial Institution Bankruptcy Act
is a necessary reform to ensure that taxpayers will not be called on to
rescue the next failing financial firm. The legislation relies on
longstanding bankruptcy principles that will be applied in a
predictable and transparent manner.
The Financial Institution Bankruptcy Act is a bipartisan measure
[[Page H1610]]
that enjoys broad support from outside experts. I urge my colleagues to
vote in favor of this important reform. I thank my colleagues on the
Judiciary Committee for their bipartisan effort to produce this
legislation.
I yield back the balance of my time.
Mr. CONYERS. Mr. Speaker, I rise in support of H.R. 2947, the
``Financial Institution Bankruptcy Act of 2016.'' for several reasons.
To begin with, the bill addresses a real need--recognized by
regulatory agencies, bankruptcy experts, and the private sector--that
the bankruptcy law must be amended so that it can expeditiously restore
trust in the financial marketplace as soon as possible after the
collapse of a major financial institution.
As many of you may recall, the failure of Lehman Brothers in 2008
caused a worldwide freeze on the availability of credit, which not only
affected Wall Street, but Main Street as well.
Even after Lehman sought bankruptcy relief, the filing did not
prevent the near collapse of our Nation's economy. The Lehman case
revealed that current bankruptcy law is ill-equipped to deal with
complex financial institutions in economic distress.
H.R. 2947 addresses these shortcomings by establishing a specialized
form of bankruptcy relief whereby the holding company of a large
financial institution could expeditiously obtain such relief, while
allowing its operating subsidiaries to function outside of bankruptcy.
Through this mechanism, the debtor's principal assets, such as its
secured property, financial contracts, and the stock of its
subsidiaries, would be transferred to a temporary ``bridge company,''
that, in turn, would liquidate these assets for the benefit of
creditors under the supervision of a trustee.
This process should reduce the likelihood of disruption to the
financial marketplace and avoid any worldwide freeze on the
availability of credit.
Another reason why I support this bill is that it appropriately
recognizes the important role the Dodd-Frank Act has in the regulation
of large financial institutions.
Without doubt, the Great Recession was a direct result of the
regulatory equivalent of the Wild West.
In the absence of any meaningful regulation of the mortgage industry,
lenders developed high risk subprime mortgages and used predatory
marketing tactics targeting the most vulnerable.
These doomed-to-fail mortgages were then securitized and sold to
unsuspecting investors, including pension funds and school districts.
Millions of Americans were trapped in mortgages they could no longer
afford. This resulted in causing vast waves of foreclosures, massive
unemployment, and international economic upheaval.
The Dodd-Frank Act goes a long way toward reinvigorating a regulatory
system that makes the financial marketplace more accountable, more
transparent, and more resilient.
And, H.R. 2947 will make the Dodd-Frank Act even more effective by
ensuring the bankruptcy law is better equipped to resolve these
companies.
Finally, I am pleased that H.R. 2947 is the product of a very
collaborative, inclusive, and deliberative process.
A collaborative process--particularly with respect to complex
legislation with wide-ranging consequences--is essential. It should be
the norm, not the exception.
Accordingly, I commend Judiciary Committee Chairman Goodlatte for his
leadership in ensuring this collaborative process for H.R. 2947.
Nevertheless, while the bill is an excellent measure, it
unfortunately does not include any provision allowing the federal
government to be a lender of last resort, a critical element that
nearly every expert recognizes is necessary to ensure financial
stability. This is a matter that at some point must be addressed.
Again, I want to acknowledge the excellent level of cooperation on
both sides of the aisle in producing the legislation that is pending
before us today.
In closing, I appreciate that my Judiciary Committee colleagues on
both sides of the aisle have come together to support H.R. 2947.
Nevertheless, I strongly encourage Chairman Goodlatte to consider
other bankruptcy-related measures that my colleagues and I have
introduced this Congress dealing with equally important matters.
These measures include H.R. 97, the ``Protecting Employees and
Retirees in Business Bankruptcies Act,'' which I introduced to help
level the playing field for employees and pensioners in corporate
bankruptcy cases.
I also would urge consideration of legislation, such as H.R. 1674,
the ``Private Student Loan Bankruptcy Fairness Act,'' a bill sponsored
by my colleague, the gentleman from Tennessee Steve Cohen, that would
help relieve those who--through no fault of their own--become entrapped
in unaffordable, predatory student loan obligations.
These measures also deserve to be considered prior to the close of
this Congress.
The SPEAKER pro tempore. The question is on the motion offered by the
gentleman from Virginia (Mr. Goodlatte) that the House suspend the
rules and pass the bill, H.R. 2947, as amended.
The question was taken; and (two-thirds being in the affirmative) the
rules were suspended and the bill, as amended, was passed.
A motion to reconsider was laid on the table.
____________________