Understand the complexities and nuances of the Bankruptcy Code to better advise clients and prepare for court.
By Diane Davis
Feb. 11 — The House Judiciary Committee Feb. 11 approved by a vote of 25–0 the “Financial Institution Bankruptcy Act of 2016,” which would amend the Bankruptcy Code in order to improve the efficient resolution of a financial firm through the bankruptcy process.
H.R. 2947, or “FIBA” as referred to by the committee, incorporates the recommendations of hearing witnesses, regulators, and experts from four committee hearings over the past two years .
The measure is the product of a bipartisan coalition within the House Judiciary Committee to “strengthen our nation’s bankruptcy laws so that the process will be well-equipped to administer bankruptcy cases related to financial institutions,” according to a statement released Feb. 11 by the committee.
The bill would allow for a “speedy transfer of the operating assets of a financial firm over the course of a weekend,” according to a statement by House Chairman Bob Goodlatte (R-Va.). “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,” Goodlatte said.
The legislation would also require 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 cases.
Further, the bill would provide for key regulatory input throughout the process.
Rep. Dave Trott (R-Mich.) offered an amendment in the nature of a substitute to H.R. 2947, which received bipartisan support and was approved by the committee.
According to Trott, his amendment would remove the Federal Reserve Board's ability to initiate an involuntary bankruptcy petition against a financial institution.
That provision, Ranking Member Rep. John Conyers, Jr. (D-Mich.) said, was one of the contentious issues in the earlier bill that was favorably reported by the Judiciary Committee last year. Title II of the Dodd-Frank Act grants the Federal Deposit Insurance Corporation the authority to resolve failed systemically important financial institutions under its receivership.
Conyers, who fully supported Trott's amendment, noted that the bill doesn't contain a provision to allow the federal government to serve as a lender of last resort.
“That's an issue that doesn't fall within the House Judiciary Committee,” he said.
Trott's amendment would also clarify that the Chief Justice of the United States will randomly select 10 bankruptcy judges to be available to preside over a case under Subchapter V of Chapter 11.
Finally, Trott's amendment would clarify technical terms such as that the term “agreement” includes qualified financial contracts.
“This is commonsense legislation,” Trott said. “The American people shouldn't be on the hook for the failure of bad business practices” and have to bail out financial institutions,” he said.
H.R. 2947 “offers an important solution, and protects the American people and the economy,” Trott said.
“By improving the Bankruptcy Code, we are further establishing a transparent, predictable process overseen by an experienced bankruptcy judge,” according to a Feb. 11 statement issued by the committee on behalf of Goodlatte, Trott, Conyers, and Rep. Tom Marino (R-Pa.).
“In turn, this will ensure that shareholders and creditors of a financial institution, not taxpayers, bear the risk and the losses associated with the failure of a financial institution. This legislation will not create a single new regulation, and is an important step towards safeguarding against a future systemic economic collapse,” the committee said.
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Full text of H.R. 2947, Amendment in the Nature of a Substitute, is available at: http://src.bna.com/cA1
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