* Commission looking at major overhauls to Chapter 11
* Public hearings to include labor, benefits issues
* 19-member commission formed by industry group
By Nick Brown
Dec 3 Labor and benefits will be central issues
in a host of public hearings on possible major changes in U.S.
bankruptcy rules, a commission overseeing the process said on
The fate of workers "has gotten a lot of attention" in
recent high-profile bankruptcies, including those of Hostess
Brands Inc and American Airlines parent AMR Corp,
said bankruptcy attorney Robert Keach, the commission's
"We'll be hearing from both labor and management about the
way the bankruptcy code treats collective bargaining agreements,
pension issues and the like," Keach, of law firm Bernstein Shur
Sawyer & Nelson, said on a conference call.
Hostess was forced to liquidate after one of its key unions
went on strike. AMR is in a labor dispute with unionized pilots.
Labor unions are considered creditors in bankruptcy cases, but
their claims have a lower priority than those of secured
creditors such as lenders.
The 19-member commission was formed by the American
Bankruptcy Institute, an insolvency industry group, and charged
with exploring overhauls of the Chapter 11 bankruptcy code. Its
eventual aim is to issue a report on its recommendations -
slated for April 2014 - and propose legislation to Congress.
Keach said in October the commission would consider
reinventing the statutes "from scratch" to reflect the modern
financial climate. When the current code was established in
1978, distressed investing and complex financial instruments
such as derivatives were not as prevalent.
In the handful of hearings so far, the commission has heard
largely from lenders, many of whom have expressed concern that
the commission would look to limit the use of secured credit.
Secured credit gives bankrupt companies access to credit by
offering collateral to lenders, but it risks leaving companies
At a public hearing in October, Lee Shaiman, a managing
director at the Blackstone Group's GSO Capital Partners,
said major rules changes could "seriously impair the functioning
of the capital markets and thus harm businesses both in and out
Commission members have said they are not looking to curb
the use of secured credit so much as improve its transparency.
The commission will also consider changes to rules that
exempt derivatives contracts from certain bankruptcy rules and
the effects on bankrupt retailers of a 2005 law that changed
rules on treatment of leases in bankruptcy.
About six or seven hearings will be held throughout the
country next year. In all, the commission is looking at 13 areas
of bankruptcy law, including bankruptcy financing, methods of
valuing bankrupt firms, and rules on how money is allocated to
Advisory subcommittees are assigned to each issue and are
tasked with gathering feedback from hundreds of professionals
throughout the insolvency industry. Each committee will issue a
report for deliberation by the full commission.
The commission's final report will aim to pull all issues
together with broad consensus, member Richard Levin said on
"We hope we'll be able to come up with a product in the
coming year or two that the entire community will be able to
endorse," Levin, a lawyer at Cravath Swaine & Moore, said.
"Maybe not every comma and semi-colon, but at least in general