[Congressional Record Volume 163, Number 1 (Tuesday, January 3, 2017)]
[Extensions of Remarks]
[Pages E5-E9]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




   INTRODUCTION OF THE PROTECTING EMPLOYEES AND RETIREES IN BUSINESS 
                        BANKRUPTCIES ACT OF 2017

                                  _____
                                 

                         HON. JOHN CONYERS, JR.

                              of michigan

                    in the house of representatives

                        Tuesday, January 3, 2017

  Mr. CONYERS. Mr. Speaker, throughout our Nation's history, 
hardworking American men and women have labored to make our businesses 
become the most productive and dynamic in the world. Unfortunately, 
when some of these businesses encounter financial difficulties and seek 
to reorganize their debts under Chapter 11 of the Bankruptcy Code, 
these very same workers and retirees are often asked to make major 
sacrifices through lost job protections, lower wages, and the 
elimination of hard-won pension and health benefits, while the 
executives and managers of these business are not required to make 
comparable sacrifices.
  We must do more to ensure that America's most important resource--
workers and retirees--are treated more fairly when these business seek 
to reorganize their financial affairs under the protection of our 
bankruptcy laws. The Protecting Employees and Retirees in Business 
Bankruptcies Act of 2017 accomplishes this goal by amending the 
Bankruptcy Code in several respects. First, it improves recoveries for 
employees and retirees by: (1) increasing the amount of worker claims 
entitled to priority payment for unpaid wages and contributions to 
employee benefit plans up to $20,000; (2) eliminating the difficult to 
prove restriction in current law that wage and benefit claims must be 
earned within 180 days of the bankruptcy filing in order to be entitled 
to priority payment; (3) allowing employees to assert claims for losses 
in certain defined contribution plans when such losses result from 
employer fraud or breach of fiduciary duty; (4) establishing a new 
priority administrative expense for workers' severance pay; and (5) 
clarifying that back pay awards for WARN Act damages are entitled to 
the same priority as back pay for other legal violations.
  Second, the legislation reduces employees' and retirees' losses by: 
(1) restricting the conditions under which collective bargaining 
agreements and commitments to fund retiree pensions and health benefits 
may be eliminated or adversely affected; (2) preventing companies from 
singling out non-management retirees for concessions; (3) requiring a 
court to consider the impact a bidder's offer to purchase a company's 
assets would have on maintaining existing jobs and preserving retiree 
pension and health benefits; and (4) clarifying that the principal 
purpose of Chapter 11 bankruptcy is the preservation of jobs to the 
maximum extent possible.
  Third, the bill restricts excessive executive compensation programs 
by: (1) requiring full disclosure and court approval of executive 
compensation packages; (2) restricting the payment of bonuses and other 
forms of incentive compensation to senior officers and others; and (3) 
ensuring that insiders cannot receive retiree benefits if workers have 
lost their retirement or health benefits.
  This legislation is identical to H.R. 97, introduced in the 114th 
Congress, H.R. 100, introduced in the 113th Congress, and H.R. 6117, 
introduced in the 112th Congress. It is supported by the AFL-CIO and 
many of its largest affiliates. A section-by-section explanation of the 
bill follows:
  Sec. 1. Short Title. Section 1 sets forth the short title of the bill 
as the ``Protecting Employees and Retirees in Business Bankruptcies Act 
of 2017.'' It also includes a table of contents for the bill.
  Sec. 2. Findings. Section 2 sets forth various findings in support of 
this bill. Title I-Improving Recoveries for Employees and Retirees.
  Sec. 101. Increased Wage Priority. Bankruptcy Code section 507 
accords priority in payment status for certain types of claims, i.e., 
these priority claims must be paid in full in the order of priority 
before general unsecured claims may be paid. Section 507(a)(4) accords 
a fourth level priority to an unsecured claim up to $10,000 owed to an 
individual for wages, salaries, or commissions (including vacation, 
severance, and sick leave pay) earned within the 180-day period 
preceding the filing of the bankruptcy case or the date on which the 
debtor's business ceased, whichever occurs first. Section 101 amends 
section 507(a)(4) to increase the amount of the priority to $20,000 and 
eliminate the 180-day reachback limitation.
  Bankruptcy Code section 507(a)(5) accords a fifth level priority for 
unsecured claims for contributions to an employee benefit plan arising 
from services rendered within the 180-day period preceding the filing 
of the bankruptcy case or the date on which the debtor's business 
ceased (whichever occurs first). The amount of the claim is based on 
the number of employees covered by the plan multiplied by $10,000, less 
the aggregate amount paid to such employees pursuant to section 
507(a)(4) and the aggregate amount paid by the estate on behalf of such 
employees to any other employee benefit plan. Section 101 amends

[[Page E6]]

Bankruptcy Code section 507(a)(5) to: (1) increase the priority amount 
to $20,000; (2) eliminate the offset requirements; and (3) eliminate 
the 180-day limitation.
  Sec. 102. Claim for Stock Value Losses in Defined Contribution Plans. 
Section 102 amends the Bankruptcy Code's definition of a claim to 
include a right or interest in equity securities of the debtor (or an 
affiliate of the debtor) held in a defined contribution plan for the 
benefit of an individual who is not an insider, senior executive 
officer or one of the 20 next most highly compensated employees of the 
debtor (if one or more are not insiders), providing: (1) such 
securities were attributable to employer contributions by the debtor 
(or an affiliate of the debtor), or by elective deferrals, together 
with any earnings thereon; and (2) the employer or plan sponsor who 
commenced the bankruptcy case either committed fraud with respect to 
such plan or otherwise breached a duty to the participant that 
proximately caused the loss of value.
  Sec. 103. Priority for Severance Pay. Bankruptcy Code section 503(b) 
establishes an administrative expense payment priority for certain 
types of unsecured claims. Among all types of unsecured claims, 
administrative expenses are accorded the highest payment priority, 
i.e., they must be paid in full before priority and general unsecured 
claims may be paid. Section 103 amends section 503(b) to accord 
administrative expense priority for severance pay owed to the debtor's 
employees (other than an insider, other senior management, or a 
consultant retained to provide services to the debtor) under a plan, 
program or policy generally applicable to the debtor's employees (but 
not under an individual contract of employment) or owed pursuant to a 
collective bargaining agreement for termination or layoff on or after 
the date the bankruptcy case was filed. Such pay is deemed earned in 
full upon such termination or layoff.
  Sec. 104. Financial Returns for Employees and Retirees. Bankruptcy 
Code section 1129(a) specifies various criteria that must be satisfied 
before a chapter 11 plan of reorganization may be confirmed. Section 
104 amends section 1129(a) to add a further requirement. The plan must 
provide for the recovery of damages for the rejection of a collective 
bargaining agreement or for other financial returns as negotiated by 
the debtor and the authorized representative under section 1113 to the 
extent such returns are paid under, rather than outside of a plan.
  Section 104 also replaces Bankruptcy Code section 1129(a)(13), which 
pertains to the payment of retiree benefits under section 1114. As 
revised, section 1129(a)(13) requires a plan to provide for the 
continuation after the plan's effective date of the payment of all 
retiree benefits at the level established under either section 
1114(e)(1)(B) or (g) at any time prior to confirmation of the plan, for 
the duration of the period for which the debtor has obligated itself to 
provide such benefits. If any modifications are made prior to 
confirmation of the plan, the plan must provide for the continuation of 
all retiree benefits maintained or established in whole or in part by 
the debtor prior to the petition filing date. In addition, the plan 
must provide for recovery of claims arising from the modification of 
retiree benefits and other financial returns as negotiated by the 
debtor and the authorized representative to the extent such returns are 
paid under, rather than outside of, a plan.
  Sec. 105. Priority for WARN Act Damages. Section 105 amends 
Bankruptcy Code section 503(b)(1)(A)(ii) to provide administrative 
expense status to wages and benefits awarded pursuant to a judicial or 
National Labor Relations Board proceeding as back pay or damages 
attributable to any period of time occurring after the commencement of 
the bankruptcy case. This provision applies where the award was made as 
a result of the debtor's violation of federal or state law, without 
regard to the time of the occurrence of unlawful conduct on which the 
award is based or to whether any services were rendered on or after the 
commencement of the bankruptcy case. It includes an award by a court 
under section 2901 of title 29 of the United States Code of up to 60 
days' pay and benefits following a layoff that occurred or commenced at 
a time when such award period includes a period on or after the 
commencement of the case, if the court determines that payment of wages 
and benefits by reason of the operation of this clause will not 
substantially increase the probability of layoff or termination of 
current employees or of nonpayment of domestic support obligations 
during the case under this title. Title II-Reducing Employees' and 
Retirees' Losses.
  Sec. 201. Rejection of Collective Bargaining Agreements. Bankruptcy 
Code section 1113 sets forth the requirements by which a collective 
bargaining agreement may be assumed or rejected. Section 201 amends 
section 1113 in several respects. First, it amends section 1113(a) to 
clarify that a chapter 11 debtor may reject a collective bargaining 
agreement only in accordance with section 1113.
  Second, it amends Bankruptcy Code section 1113(b) to clarify that no 
provision in title II of the United States Code may be construed to 
permit a trustee to unilaterally terminate or alter the terms of a 
collective bargaining agreement absent compliance with section 1113. 
The provision further specifies that the trustee must timely pay all 
monetary obligations arising under such agreement and that any payment 
required to be made pre-confirmation has the status of an allowed 
administrative expense under Code section 503.
  Third, it amends Bankruptcy Code section 1113(c) to require a 
trustee, when seeking to modify a collective bargaining agreement, to 
provide notice of such proposed modification to the labor organization 
representing the employees covered by the agreement. The trustee must 
also promptly provide an initial proposal for modification. In 
addition, the trustee must confer in good faith with the labor 
organization, at reasonable times and for a reasonable period, given 
the complexity of the case, in an effort to reach a mutually acceptable 
modification of the agreement. Each modification proposal must be based 
on a business plan for the reorganization of the debtor and reflect the 
most complete and reliable information. As amended, section 1113(c) 
requires the trustee to provide to the labor organization all 
information relevant for negotiations. If such disclosure could 
compromise the debtor's position with respect to its competitors in the 
industry, the provision authorizes the court to issue a protective 
order, subject to the needs of the labor organization to evaluate the 
trustee's proposal and any application to reject the collective 
bargaining agreement or for interim relief under section 1113.
  In consideration of federal policy encouraging the practice and 
process of collective bargaining and in recognition of the bargained-
for expectations of the employees covered by the agreement, any 
modification proposed by the trustee must: (1) only be proposed as part 
of a program of workforce and nonworkforce cost savings devised for the 
debtor's reorganization, including savings in management personnel 
costs; (2) be limited to modifications designed to achieve a specified 
aggregate financial contribution for employees covered by the 
agreement, taking into consideration any labor cost savings negotiated 
within the 12-month period prior to the filing of the bankruptcy case; 
(3) be no more than the minimum savings essential to permit the debtor 
to exit bankruptcy, such that confirmation is not likely to be followed 
by the liquidation or the need for further financial reorganization of 
the debtor; and (4) not be disproportionate or overly burden the 
employees covered by the agreement, either in the amount of the cost 
savings sought from such employees or the nature of the modifications.
  Fourth, it amends Bankruptcy Code section 1113(d) to provide that if 
the trustee and the labor organization (after a period of negotiations) 
do not reach an agreement over mutually satisfactory modifications and 
further negotiations are not likely to produce mutually satisfactory 
modifications, the trustee may file a motion seeking rejection of the 
collective bargaining agreement after notice and a hearing. Absent 
agreement by the parties, the hearing may not be held earlier than 21 
days from when notice of the hearing is provided. Only the debtor and 
the labor organization may appear and be heard at the hearing. An 
application for rejection must seek rejection effective upon the entry 
of an order granting such relief.
  In consideration of federal policy encouraging the practice and 
process of collective bargaining and in recognition of the bargained-
for expectations of the employees covered by the agreement, section 
1113(d) (as amended) provides that the court may grant a motion seeking 
rejection of such agreement only if the court: (1) finds that the 
trustee has complied with the requirements of section 1113(c); (2) has 
considered alternative proposals by the labor organization and 
concluded that such proposals do not meet the requirements of section 
1113(c)(3)(B); (3) finds that further negotiations regarding the 
trustee's proposal or an alternative proposal by the labor organization 
are not likely to produce an agreement; (4) finds that implementation 
of the trustee's proposal will not: (a) cause a material diminution in 
the purchasing power of the employees covered by the agreement, (b) 
adversely affect the debtor's ability to retain an experienced and 
qualified workforce; or (c) impair the debtor's labor relations such 
that the ability to achieve a feasible reorganization will be 
compromised; and (5) concludes, based on clear and convincing evidence, 
that rejection of the agreement and immediate implementation of the 
trustee's proposal is essential to permit the debtor's exit from 
bankruptcy such that confirmation is not likely to be followed by the 
liquidation or the need for further financial reorganization of the 
debtor in the short term. If the trustee has implemented a program of 
incentive pay, bonuses or other financial returns for insiders, senior 
executive officers, or the 20 next most highly compensated employees or 
consultants (or such a program was implemented within 180 days before 
the bankruptcy

[[Page E7]]

case was filed), the court must presume that the debtor has failed to 
satisfy the requirements of section 1113(c)(3)(C).
  Subsection (d), as amended, prohibits the court from entering an 
order rejecting a collective bargaining agreement that would result in 
modifications to a level lower than that proposed by the trustee in the 
proposal found by the court to have complied with the requirements of 
section 1113.
  At any time after an order rejecting a collective bargaining 
agreement is entered (or mutually satisfactory agreement between the 
trustee and the labor organization is entered into), the labor 
organization may apply to the court for an order seeking an increase in 
the level of wages or benefits or relief from working conditions based 
on changed circumstances. The court must grant such relief only if the 
increase or other relief is not inconsistent with the standard set 
forth in section 1113(d)(2)(E).
  Fifth, section 201 amends Bankruptcy Code section 1113(e) to provide 
that during the period in which a collective bargaining agreement at 
issue under this section continues in effect and if either essential to 
the continuation of the debtor's business or in order to avoid 
irreparable damage to the estate, the court, after notice and a 
hearing, may authorize the trustee to implement interim changes in the 
terms, conditions, wages, cs-benefits, or work rules provided by the 
collective bargaining agreement. Any hearing under this provision must 
be scheduled in accordance of the trustee's needs. The implementation 
of such interim changes will not render the application for rejection 
moot.
  Sixth, section 201 amends Bankruptcy Code section 1113(f) to provide 
that the rejection of a collective bargaining agreement constitutes a 
breach of such agreement and is effective no earlier than the entry of 
an order granting such relief. Solely for the purpose of determining 
and allowing a claim arising from rejection of a collective bargaining 
agreement, such rejection must be treated as a rejection of an 
executory contract under Bankruptcy Code section 365(g) and shall be 
allowed or disallowed in accordance with section 502(g)(1). Subsection 
(f), as amended, further provides that no claim for rejection damages 
may be limited by section 502(b)(7). In addition, the provision permits 
economic self-help by a labor organization upon a court order granting 
rejection of a collective bargaining agreement under either subsection 
(d) or (e) of section 1113. It further provides that neither title 11 
of the United States Code nor other provisions of State or Federal law 
may be construed to the contrary.
  Seventh, section 201 adds new subsection (g) to require the trustee 
to provide for the reasonable fees and costs incurred by a labor 
organization under section 1113, upon request and after notice and a 
hearing.
  Eighth, section 201 adds new subsection (h) to require the assumption 
of a collective bargaining agreement to be done in accordance with 
section 365.
  Sec. 202. Payment of Insurance Benefits to Retired Employees. 
Bankruptcy Code section 1114 sets out criteria pursuant to which a 
debtor may modify retiree benefits, among other matters. Retiree 
benefits include payments to retired employees, their spouses, and 
dependents for medical, surgical, and hospital care benefits. It also 
includes benefits in the event of sickness, accident, disability, or 
death under any plan, fund or program.
  Section 202 amends section 1114 in several respects. First, it amends 
the provision's definition of ``retiree benefits'' to specify that it 
applies whether or not the debtor asserts a right to unilaterally 
modify such benefits under such plan, fund or program.
  Second, it amends Bankruptcy Code section 1114(b)(2), which specifies 
the rights, powers and duties of a committee of retired employees 
appointed by the court. As amended, the provision would apply to a 
labor organization serving as the authorized representative under 
section 1114(c)(1).
  Third, section 202 replaces Bankruptcy Code section 1114(f), which 
requires a trustee to make a proposal to the authorized representative 
before seeking modification of retiree benefits. As amended, section 
1114(f)(1) specifies that if a trustee seeks to modify retiree 
benefits, the trustee must provide notice of such proposed modification 
to the authorized representative as well as promptly provide the 
initial proposal. In addition, the trustee must thereafter confer in 
good faith with the labor organization, at reasonable times and for a 
reasonable period, given the complexity of the case, in attempting to 
reach a mutually satisfactory modification. Each modification must be 
based on a business plan for the reorganization of the debtor and 
reflect the most complete and reliable information available. The 
trustee must provide the authorized representative all information 
relevant for the negotiations. If such disclosure could compromise the 
debtor's position with respect to its competitors in the industry, the 
court may issue a protective order, subject to the needs of the 
authorized representative to evaluate the trustee's proposal and an 
application pursuant to subsection (g) or (h).

  Modifications proposed by the trustee must: (1) only be proposed as 
part of a program of workforce and nonworkforce cost savings devised 
for the reorganization of the debtor, including savings in management 
personnel costs; (2) be limited to modifications designed to achieve a 
specified aggregate financial contribution for the retiree group 
represented by the authorized representative (taking into consideration 
any labor cost savings negotiated within the 12-month period prior to 
the filing of the bankruptcy case with respect to the retiree group); 
(3) be no more than the minimum savings essential to permit the debtor 
to exit bankruptcy, such that confirmation is not likely to be followed 
by the liquidation or the need for further financial reorganization of 
the debtor; and (4) not be disproportionate or overly burden the 
retiree group, either in the amount of the cost savings sought from 
such group or the nature of the modifications.
  Fourth, section 202 amends Bankruptcy Code section 1113(g) to provide 
that if the trustee and the authorized representative do not reach a 
mutually satisfactory agreement (after a period of negotiations) and 
further negotiations are not likely to produce mutually satisfactory 
modifications, the trustee may file a motion seeking to modify the 
payment of retiree benefits after notice and a hearing. Absent 
agreement of the parties, the hearing may not be held earlier than 21 
days from when notice of the hearing is provided. Only the debtor and 
the authorized representative may appear and be heard at the hearing.
  The court may grant a motion to modify the payment of retiree 
benefits only if the court: (1) finds that the trustee complied with 
the requirements of section 1114(f); (2) considered any of the 
authorized representative's alternative proposals and determined that 
such proposals do not meet the requirements of section 1114(f)(3)(B); 
(3) finds that further negotiations are not likely to produce a 
mutually satisfactory agreement; (4) finds that implementation of the 
trustee's proposal will not cause irreparable harm to the affected 
retirees; and (5) concludes that, based on clear and convincing 
evidence, an order granting the trustee's proposal and its immediate 
implementation is essential to permit the debtor's exit from bankruptcy 
such that confirmation is not likely to be followed by the liquidation 
or the need for further financial reorganization of the debtor in the 
short term.
  If the trustee has implemented a program of incentive pay, bonuses, 
or other financial returns for insiders, senior executive officers, or 
the 20 next most highly compensated employees or consultants (or such 
program was implemented within 180 days before the bankruptcy case was 
filed), the court must presume that the debtor failed to satisfy the 
requirements of section 1114(f)(3)(C).
  Fifth, section 202 strikes subsection (k) and makes conforming 
revisions.
  Sec. 203 Protection of Employee Benefits in a Sale of Assets. Section 
203 amends Bankruptcy Code section 363(b), which authorizes a debtor to 
sell or use property of the estate other than in the ordinary course of 
business (under certain circumstances), to add a new requirement. New 
section 365(b)(3) requires the court, in approving a sale, to consider 
the extent to which a bidder's offer: (1) maintains existing jobs; (2) 
preserves terms and conditions of employment, and (3) assumes or 
matches pension and retiree benefit obligations in determining whether 
such offer constitutes the highest or best offer for the property.
  Sec. 204. Claim for Pension Losses. Section 204 adds a new subsection 
to Bankruptcy Code section 502, which pertains to the allowance of 
claims and interests. New subsection (1) requires the court to allow a 
claim by an active or retired participant (or by a labor organization 
representing such participants) in a defined benefit pension plan 
terminated under section 4041 or 4042 of the Employee Retirement Income 
Security Act of 1974 (ERISA) for any shortfall in pension benefits 
accrued as of the effective date of the pension plan's termination as a 
result of such termination and limitations upon the payment of benefits 
imposed pursuant to section 4042 of such Act, notwithstanding any claim 
asserted and collected by the Pension Benefit Guaranty Corporation with 
respect to such termination.
  In addition, section 204 adds subsection (m) to Bankruptcy Code 
section 502 to require a court to allow a claim described in Bankruptcy 
Code section 101(5)(C) (as amended by this legislation) by an active or 
retired participant (or a labor union representing such participant) in 
a defined contribution plan (within the meaning of section 3(34) of 
ERISA). The amount of such claim must be measured by the market value 
of the stock at the time of contribution to, or purchase by, the plan 
and the value as of the commencement of the case.
  Sec. 205. Payments by Secured Lender. Bankruptcy Code section 506(c) 
authorizes the debtor to recover from property securing an allowed 
secured claim the reasonable and

[[Page E8]]

necessary expenses incurred to preserve or dispose of such property to 
the extent the secured creditor benefits from such expenditures. 
Section 205 amends section 506(c) to add a new provision. As amended, 
section 506(c) deems unpaid wages, accrued vacation, severance or other 
benefits owed under the debtor's policies and practices or owed 
pursuant to a collective bargaining agreement, for services rendered on 
and after commencement of the case to be necessary costs and expenses 
of preserving or disposing of property securing an allowed secured 
claim. Such obligations must be recovered even if the trustee has 
otherwise waived the provisions of section 506(c) pursuant to an 
agreement with the allowed secured claimant or a successor or 
predecessor in interest.
  Sec. 206. Preservation of Jobs and Benefits. Section 206 adds a 
statement of purpose to chapter 11 of the Bankruptcy Code specifying 
that a chapter 11 debtor must have as its principal purpose the 
reorganization of its business to preserve going concern value to the 
maximum extent possible through the productive use of its assets and 
the preservation of jobs that will sustain productive economic 
activity.
  In addition, section 206 amends Bankruptcy Code section 1129(a), 
which sets out the criteria for confirming a plan, to add a new 
requirement. New section 1129(a)(17) requires the debtor to demonstrate 
that the reorganization preserves going concern value to the maximum 
extent possible through the productive use of the debtor's assets and 
preserves jobs that sustain productive economic activity.
  Section 206 also amends Bankruptcy Code section 1129(c), which 
requires the court to consider the preferences of creditors and equity 
security holders in determining which plan to confirm. Section 1129(c), 
as amended, instead requires the court to consider the extent to which 
each plan would preserve going concern value through the productive use 
of the debtor's assets and the preservation of jobs that sustain 
productive economic activity. The court must confirm the plan that 
better serves such interests. It further provides that a plan that 
incorporates the terms of a settlement with a labor organization shall 
presumptively constitute the plan that satisfies this provision.
  Sec. 207. Termination of Exclusivity. Bankruptcy Code section 1121, 
in pertinent part, gives a debtor the exclusive authority to file a 
plan and obtain acceptances of such plan for stated periods of time, 
under certain circumstances. Section 207 amends section 1121 to specify 
that cause for shortening these exclusive periods includes: (1) the 
filing of a motion pursuant to section 1113 seeking rejection of a 
collective bargaining agreement, if a plan based upon an alternative 
proposal by the labor organization is reasonably likely to be confirmed 
within a reasonable time; or (2) the proposed filing of a plan by a 
proponent other than the debtor, which incorporates the terms of a 
settlement with a labor organization, if such plan is reasonably likely 
to be confirmed within a reasonable time.


         Title III--Restricting Executive Compensation Programs

  Sec. 301. Executive Compensation Upon Exit From Bankruptcy. 
Bankruptcy Code section 1129 specifies the criteria for confirmation of 
a chapter 11 plan. Section 1129(a)(4), for example, requires that 
certain services, costs and expenses in connection with the case (or in 
connection with the plan and incident to the case) to have either been 
approved by the court (or subject to approval by the court) as 
reasonable. Section 301 amends section 1129(a)(4) to add a requirement 
that payments or other distributions under the plan to or for the 
benefit of insiders, senior executive officers, and any of the 20 next 
most highly compensated employees or consultants providing services to 
the debtor may not be approved unless: (1) such compensation is subject 
to review under section 1129(a)(5), or (2) such compensation is 
included as part of a program of payments or distributions generally 
applicable to the debtor's employees and only to the extent that the 
court determines that such payments are not excessive or 
disproportionate as compared to distributions to the debtor's 
nonmanagement workforce.
  In addition, section 301 amends section 1129(a)(5), which requires 
the plan proponent to disclose the identity and affiliations of the 
debtor's officers and others, such as the identity of any insider who 
will be employed or retained by the reorganized debtor and such 
insider's compensation. Section 301 amends section 1129(a)(5) to add a 
requirement that such compensation must be approved (or subject to 
approval) by the court in accordance with the following criteria: (1) 
the compensation is reasonable when compared to that paid to 
individuals holding comparable positions at comparable companies in the 
same industry; and (2) the compensation is not disproportionate in 
light of economic concessions by the debtor's nonmanagement workforce 
during the case.

  Sec. 302. Limitations on Executive Compensation Enhancements. In 
general, Bankruptcy Code Section 503(c) prohibits a debtor from making 
certain payments to an insider, absent certain findings by the court. 
Section 302 amends section 503(c)(1), which prohibits such payments 
when they are intended to induce the insider to remain with the 
debtor's business, in several respects. First, it expands the provision 
so that it applies a debtor's senior executive officer and any of the 
debtor's 20 next most highly compensated employees or consultants. 
Second, it clarifies that the provision prohibits the payment of 
performance or incentive compensation, a bonus of any kind, and other 
financial returns designed to replace or enhance incentive, stock, or 
other compensation in effect prior to the commencement of the case. 
And, third, it specifies that the court's findings must be based on 
clear and convincing evidence in the record.
  In addition, section 302 also amends Bankruptcy Code section 
503(c)(3), which prohibits other transfers made or obligations incurred 
outside of the debtor's ordinary course of business and not justified 
by the facts and circumstances of the case, including transfers made 
and obligations incurred for the benefit of the debtor's officers, 
managers or consultants hired postpetition. Section 302 replaces 
section 503(c)(3) with a provision prohibiting other transfers or 
obligations incurred to or for the benefit of insiders, senior 
executive officers, managers or consultants providing services to the 
debtor unless they meet certain criteria. First, the court must find, 
based on clear and convincing evidence (without deference to the 
debtor's request for authorization to make such payments), that such 
payments are essential to the survival of the debtor's business or, in 
the case of a liquidation, essential to the orderly liquidation of the 
debtor's business and maximization of the value of the debtor's assets. 
Second, the services for which compensation is sought must be essential 
in nature. Third, such payments must be reasonable compared to 
individuals holding comparable positions at comparable companies in the 
same industry and not disproportionate in light of economic concessions 
made by the debtor's nonmanagement workforce during the case.
  Sec. 303. Assumption of Executive Retirement Plans. Section 303 
amends Bankruptcy Code section 365, which sets forth the criteria 
pursuant to which executory contracts and unexpired leases may be 
assumed and rejected, to add two provisions. New subsection (q) 
provides that no deferred compensation arrangement for the benefit of a 
debtor's insiders, senior executive officers, or any of the 20 next 
most highly compensated employees may be assumed if a defined benefit 
pension plan for the debtor's employees has been terminated pursuant to 
section 4041 or 4042 of ERISA on or after the commencement of the case 
or within 180 days prior to the commencement of the case.
  New subsection (r) provides that no plan, fund, program, or contract 
to provide retiree benefits for insiders, senior executive officers, or 
any of the 20 next most highly compensated employees of the debtor may 
be assumed if the debtor: (1) has obtained relief under subsection (g) 
or (h) of section 1114 to impose reductions in retiree benefits; (2) 
has obtained relief under subsection (d) or (e) of section 1113 to 
impose reductions in the health benefits of the debtor's active 
employees; or (3) or reduced or eliminated active employee or retiree 
benefits within 180 days prior to the commencement of the case.
  Sec. 304. Recovery of Executive Compensation. Section 304 adds a new 
provision to the Bankruptcy Code. New section 563(a) provides that if a 
debtor reduces its contractual obligations under a collective 
bargaining agreement pursuant to section 1113(d), or retiree benefits 
pursuant to section 1114(g), then the court, as part of the order 
granting such relief, must make certain determinations. The court must 
determine the percentage of diminution in the value of the obligations 
as a result of such relief. In making this determination, the court 
must include any reduction in benefits as a result of the termination 
pursuant to section 4041 or 4042 of ERISA of a defined benefit plan 
administered by the debtor, or for which the debtor is a contributing 
employer, effective at any time within 180 days prior to the 
commencement of the case. The court may not take into consideration 
pension benefits paid or payable under title IV of ERISA as a result of 
such termination.
  If a defined benefit pension plan administered by the debtor, or for 
which the debtor is a contributing employer, is terminated pursuant to 
section 4041 or 4042 of ERISA, effective at any time within 180 days 
prior to the commencement of the case, and the debtor has not obtained 
relief under section 1113(d), or section 1114(g), new section 563(b) 
requires the court, on motion of a party in interest, to determine the 
percentage in diminution in the value of benefit obligations when 
compared to the total benefit liabilities prior to such termination. 
The court may not take into account pension benefits paid or payable 
pursuant to title IV of ERISA as a result of such termination.

[[Page E9]]

  After such percentage diminution in value is determined, new section 
563(c) provides that the estate has a claim for the return of the same 
percentage of the compensation paid, directly or indirectly (including 
any transfer to a self-settled trust or similar device, or to a 
nonqualified deferred compensation plan under section 409A(d)(1) of the 
Internal Revenue Code of 1986) to certain individuals. These 
individuals include: (1) any officer of the debtor serving as a member 
of the debtor's board of directors within the year before the filing of 
the case; and (2) any individual serving as chairman or as lead 
director of the board of directors at the time when relief under 
section 1113 or section 1114 is granted, or if no such relief has been 
granted, then the termination of the defined benefit plan.
  New section 563(d) provides that a trustee or committee appointed 
pursuant to section 1102 may commence an action to recover such claims. 
If neither commences such action by the first date set for the 
confirmation hearing, any party in interest may apply to the court for 
authority to recover such claims for the benefit of the estate. The 
costs of recovery must be borne by the estate.
  New section 563(e) prohibits the court from awarding postpetition 
compensation under section 503(c) or otherwise to any person subject to 
the provisions of section 563(c) if there is a reasonable likelihood 
that such compensation is intended to reimburse or replace compensation 
recovered by the estate pursuant to section 563.
  Sec. 305. Preferential Compensation Transfer. Bankruptcy Code section 
547 authorizes preferential transfers to be avoided. Section 305 adds a 
new subsection to section 547 to permit the avoidance of a transfer to 
or for the benefit of an insider (including an obligation incurred for 
the benefit of an insider under an employment contract) made in 
anticipation of bankruptcy. The provision also permits the avoidance of 
a transfer made in anticipation of a bankruptcy to a consultant who is 
formerly an insider and who is retained to provide services to an 
entity that becomes a debtor (including an obligation under a contract 
to provide services to such entity or to a debtor) made or incurred 
within one year before the filing of the bankruptcy case. In addition, 
new section 547(j) provides that no provision of section 547(c) 
(specifying certain exceptions to section 547) may be utilized as a 
defense. Further, section 547(j) permits the trustee or a committee to 
commence such avoidance action. If neither do so as of the date of the 
commencement of the confirmation hearing, any party in interest may 
apply to the court for authority to recover the claims for the benefit 
of the estate. The costs of recovery must be borne by the estate.


                       Title IV--Other Provisions

  Sec. 401. Union Proof of Claim. Section 401 amends Bankruptcy Code 
section 501(a) to permit a labor organization (in addition to a 
creditor or indenture trustee) to file a proof of claim.
  Sec. 402. Exception from Automatic Stay. Section 402 amends 
Bankruptcy Code section 362(b) to create an additional exception to the 
automatic stay with respect to the commencement or continuation of a 
grievance, arbitration or similar dispute resolution proceeding 
established by a collective bargaining agreement that was or could have 
been commenced against the debtor before the filing of the bankruptcy 
case. The exception also applies to the payment or enforcement of 
awards or settlements of such proceeding.

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