[Congressional Record Volume 163, Number 59 (Wednesday, April 5, 2017)]
[House]
[Pages H2715-H2720]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
FINANCIAL INSTITUTION BANKRUPTCY ACT OF 2017
Mr. GOODLATTE. Mr. Speaker, I move to suspend the rules and pass the
bill (H.R. 1667) 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. 1667
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 2017''.
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 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
corporation 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 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
[[Page H2716]]
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).
``(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;
[[Page H2717]]
``(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 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
[[Page H2718]]
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 Amendments.--
(1) The table of sections of 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.''.
(2) The table of subchapters of 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
``1181. Inapplicability of other sections.
``1182. Definitions for this subchapter.
``1183. Commencement of a case concerning a covered financial
corporation.
``1184. Regulators.
``1185. Special transfer of property of the estate.
``1186. Special trustee.
``1187. Temporary and supplemental automatic stay; assumed debt.
``1188. Treatment of qualified financial contracts and affiliate
contracts.
``1189. Licenses, permits, and registrations.
``1190. Exemption from securities laws.
``1191. Inapplicability of certain avoiding powers.
``1192. Consideration of financial stability.''.
The SPEAKER pro tempore. Pursuant to the rule, the gentleman from
Virginia (Mr. Goodlatte) and the gentleman from Illinois (Mr.
Schneider) 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 include extraneous materials on H.R. 1667, 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 have examined how best to prevent another
similar crisis from occurring and 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 others things, this effort responded to provisions of the Dodd-
Frank Wall Street Reform and Consumer Protection Act that called for an
examination of how to improve the Bankruptcy Code in this area.
During the past two Congresses, the Judiciary Committee favorably
reported the Financial Institution Bankruptcy Act, legislation that
improved the Bankruptcy Code to better facilitate the resolution of
financial firms.
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. In both instances, the bill passed the House
by a voice vote under suspension of the rules.
This Congress, Chairman Marino of the Subcommittee on Regulatory
Reform, Commercial and Antitrust Law introduced the Financial
Institution Bankruptcy Act as H.R. 1667. Following its introduction,
the Subcommittee on Regulatory Reform, Commercial and Antitrust Law
conducted a hearing on the bill. H.R. 1667 is identical to previous
legislation, with one minor change to refine the director liability
protection provision. Last week, the Judiciary Committee approved the
legislation by a unanimous voice vote.
The bill before us today is the product of a careful, deliberate, and
thorough process, and 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 an efficient
resolution of a financial firm through the bankruptcy process.
The bill allows for a speedy transfer of the operating assets of a
financial firm 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 a significant impact on the firm's employees,
suppliers, and customers.
The bill also requires expedited judicial review by a bankruptcy
judge randomly chosen from a pool of judges designated in advance and
selected by the Chief Justice for their 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
[[Page H2719]]
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 would like to thank Chairman Marino, who chaired the hearing on
this legislation and who is the lead sponsor of the bill. I am also
pleased that Ranking Member Conyers and Subcommittee Ranking Member
Cicilline joined in introducing this important legislation. I want to
thank them and their staff for their efforts in developing this bill.
I urge my colleagues to vote in favor of this important legislation.
Mr. Speaker, I reserve the balance of my time.
Mr. SCHNEIDER. Mr. Speaker, I yield myself such time as I may
consume.
Mr. Speaker, I am pleased to rise in support of H.R. 1677, Financial
Institution Bankruptcy Act of 2017.
I commend Regulatory Reform, Commercial and Antitrust Law Chairman
Tom Marino and Ranking Member David Cicilline, as well as Judiciary
Committee Chairman Bob Goodlatte, for their leadership on this bill.
I support this legislation for several reasons. To begin with, H.R.
1667 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 systemically
significant financial institution.
This need is perhaps best illustrated by the collapse and subsequent
bankruptcy of Lehman Brothers in 2008. As a result of that firm's
failure and the rampant uncertainty it generated, a worldwide freeze on
the availability of credit quickly developed. This, in turn, triggered
a near collapse of our Nation's economy and clearly revealed that
current bankruptcy law is ill-equipped to deal with complex financial
institutions in acute economic distress.
H.R. 1667 would establish a specialized form of bankruptcy relief
specifically designed to facilitate the expeditious resolution of a
large, systemically significant financial institution, such as Lehman
Brothers, while minimizing its impact on the financial marketplace.
Under the bill, the debtor's operating subsidiaries would continue to
function outside of bankruptcy, while 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.''
The bridge company, under the guidance of a trustee, would then
liquidate these assets to pay the claims of the debtor's creditors. The
bill would also temporarily prevent parties from exercising their
rights in certain qualified financial contracts.
Each critical step of this process would be done under the
supervision of a bankruptcy judge and subject to appeal.
Another reason 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 environment at the time. Fortunately,
the Dodd-Frank Act has done much toward reinvigorating a regulatory
system that makes the financial marketplace more accountable and more
resilient.
In particular, title II of the Dodd-Frank Act establishes a mandatory
resolution process to wind down large financial institutions, which is
a critical enforcement tool for bank regulators to ensure compliance
with the act's heightened regulatory requirement.
H.R. 1667 is an excellent complement to the Dodd-Frank Act's
resolution process and will help facilitate the rapid administration of
a debtor's assets in an orderly fashion that maximizes value and
minimizes disruption to the financial marketplace.
Accordingly, I support this measure.
Mr. Speaker, I reserve the balance of my time.
Mr. GOODLATTE. Mr. Speaker, I yield such time as he may consume to
the gentleman from Pennsylvania (Mr. Marino), the chairman of the
Regulatory Reform, Commercial and Antitrust Law Subcommittee and the
chief sponsor of this legislation.
Mr. MARINO. Mr. Speaker, I thank Chairman Goodlatte, Ranking Member
Conyers, and my current new ranking member, Mr. Cicilline, for their
work on this important legislation. I further thank my colleague across
the aisle, Congressman Schneider from Illinois, for helping us manage
this.
This is a bipartisan bill that is better for having gone through the
regular legislative order. It was a pleasure to work with such
knowledgeable and professional colleagues.
In the wake of the financial crisis of 2008, Congress enacted the
Dodd-Frank Wall Street Reform and Consumer Protection Act. That
legislation was intended to address, among other things, the potential
failure of large financial institutions.
While the Dodd-Frank Act created a regulatory process for such an
event, the act states that the preferred method of resolution for a
financial institution is through the bankruptcy process.
However, the Dodd-Frank Act did not make any amendments to the
Bankruptcy Code to account for the unique characteristics of a
financial institution. The legislation before us today fills that void.
The Financial Institution Bankruptcy Act is the product of years of
study by industry, legal, and financial regulatory experts. It is also
the result of bipartisan review over the course of four separate
hearings before the Judiciary Committee.
The legislation includes several provisions that improve the ability
of a financial institution to be resolved through the bankruptcy
process. It allows for a speedy transfer of a financial firm's assets
to a newly formed company. That company would continue the firm's
operations for the benefit of its customers, employees, and creditors,
and ensure the financial stability of the marketplace.
This quick transfer is overseen by and subject to the approval of an
experienced bankruptcy judge, and includes due process protections for
parties in interest.
{time} 1330
The bill also creates an explicit role in the bankruptcy process for
the key financial regulators. In addition, there are provisions that
facilitate the transfer of derivative and similarly structured
contracts to the newly formed company. This will improve the ability of
the company to continue the financial institution's operations.
Finally, the legislation recognizes the factually and legally
complicated questions presented by the resolution of a financial
institution. To that end, the bill provides that specialized bankruptcy
and appellate judges will be designated in advance to preside over
these cases.
The bankruptcy process has long been favored as the primary mechanism
for dealing with distressed and failing companies. This is due to its
impartial nature, adherence to established precedent, judicial
oversight, and grounding in the principles of due process and the rule
of law. We are here today as part of an effort to structure a
bankruptcy process that is better equipped to deal with the specific
issues raised by failing financial firms.
I want to stress again the bipartisan support that went through this
process--at the subcommittee level and at the full Committee on the
Judiciary level chaired by Chairman Goodlatte, my colleague on the
other side of the aisle who is helping us manage this and the
individuals in this House who realized what had to be done to protect
the law abiding citizens of this country from a financial disaster.
As a sponsor of the bill, I urge my colleagues to vote in favor of
this important legislation.
Mr. SCHNEIDER. Mr. Speaker, I yield myself the balance of my time.
I am pleased to note that H.R. 1667 is the product, indeed, of a very
collaborative, inclusive, and deliberative process, which should be the
norm, not the exception, when it comes to drafting legislation. It
reflects thoughtful suggestions offered by Federal regulators and the
Federal judiciary as well as leading bankruptcy practitioners and
academics.
I support H.R. 1667, and I urge my colleagues to do the same.
Mr. Speaker, I yield back the balance of my time.
Mr. GOODLATTE. Mr. Speaker, I yield myself the balance of my time.
[[Page H2720]]
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 that enjoys broad support from outside experts, and I urge my
colleagues to vote in favor of this important reform.
Mr. Speaker, I yield back the balance of my time.
Mr. CICILLINE. Mr. Speaker, I rise in support of H.R. 1667, the
``Financial Institution Bankruptcy Act of 2017.''
In 2008, the United States economy nearly collapsed as a direct
result of lending practices in the housing market that were predatory,
unsafe, and in many cases fraudulent.
Investments in toxic securities created a cycle of failure in the
housing market: the declining health of the market undermined the value
of these securities, which, in turn, devastated the housing market and
caused the failure of several of the nation's largest financial
institutions.
With the financial system in near collapse, large financial
institutions were essentially able to ``blackmail'' the government
because these banks were so large that there was no way to break them
apart, as then-FDIC Chair Sheila Bair testified in 2009.
Although the true hardship caused by this widespread fraud is
incalculable, we do know that it erased $10 trillion of household
wealth and caused 8 million Americans to lose their jobs and 5 million
Americans to lose their homes.
Rhode Island, my home state, was hit particularly hard by the
recession. When I took office, the unemployment rate in Rhode Island
hovered at 11.2%, the fifth highest in the country.
In the wake of this economic disaster, the Dodd-Frank Act was enacted
to comprehensively reform the financial system.
Because of this law--which includes some of the strongest consumer
protections passed since the Great Depression--the banking system is
stronger; there is more transparency in consumer lending; and the
Consumer Financial Protection Bureau (CFPB) continues to serve as an
important watchdog to protect Americans against predatory lending and
fraud in the financial system.
Title I of Dodd-Frank provides stability in markets by requiring
large financial institutions to have a ``living will'' to serve as a
plan for the ``rapid and orderly resolution in the event of material
financial distress or failure.''
Title II ends taxpayer bailouts of banks that are too big to fail by
providing financial regulators with orderly liquidation authority where
a bank's collapse ``would have serious adverse effects on financial
stability in the United States'' and ``no viable private sector
alternative is available.'' This process expressly requires a finding
by the Secretary of the Treasury that the bankruptcy process would not
be appropriate to resolve a distressed firm.
Leading commentators agree, however, that the U.S. bankruptcy process
is not designed to accommodate the orderly resolution of a large
financial institution that poses systemic risk to the entire economy.
H.R. 1667, the Financial Institution Bankruptcy Act,'' addresses this
concern by establishing a ``single point of entry'' for the resolution
of an insolvent financial institution with assets exceeding $50
billion. The goal of the bill is to establish a process where a
distressed financial institution could voluntarily seek bankruptcy
relief while its subsidiaries continue to operate.
But while I support H.R. 1667 and am an original cosponsor of this
bill, make no mistake: I will strongly oppose any effort to combine
this measure with a repeal of the Dodd-Frank Act, or any part of this
law for that matter.
Since this law was enacted, the economic recovery has led to the
creation of more than 15 million private sector jobs, a 60% increase in
business lending, and record performance by the Dow Jones Industrial
Average.
It is critical that we build on this progress through education,
training, and other initiatives to promote economic opportunity. Too
many Americans are still unemployed or working two or even three jobs
just to get by while Wall Street has never been better.
We must also preserve and advance the protections established by the
Dodd-Frank Act to ensure transparency and stability in the financial
system while protecting consumers.
The National Bankruptcy Conference agrees with this assessment, and
has previously instructed that the Dodd-Frank Act should ``continue to
be available even if the Bankruptcy Code is amended to better address
the resolution of SIFIs 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 SIFIs.''
Moreover, should this legislation become law, Dodd-Frank provides a
valuable backstop to bankruptcy through its Orderly Liquidation
Authority, which empowers the Federal Deposit Insurance Corporation
(FDIC) to act as a receiver for large financial institutions that are
``too big to fail.''
I urge my colleagues to support this legislation.
The SPEAKER pro tempore (Mr. Jenkins of West Virginia). 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. 1667, 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.
____________________