Biz Bankruptcy

Chapter 11 is a chapter of the United States Bankruptcy Code, which permits reorganization under the bankruptcy laws of the United States. Chapter 11 bankruptcy is available to any business, whether organized as a corporation or sole proprietorship, and to individuals, although it is most prominently used by corporate entities. In contrast, Chapter 7 governs the process of a liquidation bankruptcy, while Chapter 13 provides a reorganization process for the majority of private individuals with unsecured debts of less than $336,900.00 and secured debts of less than $1,010,650.00 as of April 1, 2007.

Federal bankruptcy laws govern how companies go out of business or recover from crippling debt. A bankrupt company, the “debtor,” might use Chapter 11 of the Bankruptcy Code to “reorganize” its business and try to become profitable again. Management continues to run the day-to-day business operations but all significant business decisions must be approved by a bankruptcy court.

The Bush administration is looking at “orderly” bankruptcy as a possible way to deal with the desperately ailing U.S. auto industry, the White House said Thursday as carmakers readied more plant closings and a half million new jobless claims underscored the deteriorating national economy. With General Motors, Chrysler and the rest of Detroit anxiously awaiting a White House decision on billions of dollars in emergency federal loans, press secretary Dana Perino said it wasn’t simply a choice between government rescue and the disastrous collapse of a major industry. “There’s an orderly way to do bankruptcies that provides for more of a soft landing,” she said. “I think that’s what we would be talking about.”

Congressional Democrats don’t want to bail out GM, Ford and Chrysler: they want to bail out the United Auto Workers union. Speaker Pelosi spoke for all the Democrats when she rejects the idea of reorganization of the companies under bankruptcy protections. Why? Because bankruptcy is the only legal mechanism which can free the industry from its giveaway deals with the UAW.

Delphi Corp edged closer to bankruptcy Friday as neither the United Auto Workers union nor General Motors Corp appeared willing to bail out the struggling parts supplier, which is seeking drastic cuts in pay and benefits from workers. Reports circulated on Wall Street that a bankruptcy filing could come as early as Saturday. Delphi would not comment, but the reports sent the company’s shares down 49 percent Friday to a new low of $1.12 in New York Stock Exchange trading.

This year, in bargaining for a new UAW-GM National Agreement, GM again approached us seeking further reductions in your retiree medical benefits. We have spent several months in difficult and complex bargaining with GM on this subject. From the beginning we refused GM’s demands for benefit reductions. GM argued they have the right to reduce or eliminate retiree medical benefits, as they have done with thousands of their salaried retirees. That issue could have been fought in the courts once the 2005 settlement expired in 2011. If GM prevailed in their argument, they would have the legal right to modify or even terminate your medical benefits. Needless to say, we argued strenuously that GM does not have the right to modify your benefits, even after the expiration of an existing labor agreement. While we feel confident of that position, going to court always involves risk. We wanted to avoid the uncertainty that would be created had we been forced to rely on the courts to resolve the matter. In addition, while we believe that GM is both legally and morally obligated to pay retiree medical benefits, the company’s obligation is largely unfunded. Continued benefits depend on GM’s financial health. If GM were to file for bankruptcy, retiree medical benefits could be cut or eliminated entirely. Unlike pension benefits, there is no required funding – and no government backstop – to protect retiree medical benefits. We have seen thousands of retirees at other companies lose their retiree medical benefits completely when the employer that promised to pay them sought “protection” in the bankruptcy courts. We do not ever want to see UAW GM retirees in that position.

This Agreement shall not be subject to abrogation, modification or rejection without the mutual consent of the UAW, GM and Delphi (with the exception of bilateral agreements of the UAW and GM that do not affect Delphi such as Paragraphs 1 and 5a.-d., f., and g. obligations, which may be modified by the UAW-GM National Parties), and the order obtained in the Bankruptcy Court by Delphi approving this Agreement shall so provide. The parties further agree (and the Bankruptcy Court order shall also provide) that this Agreement is without prejudice to any interested party (including the parties to this Agreement and the Official Committee of Unsecured Creditors) in all other aspects of Delphi’s Chapter 11 cases, including by illustration, Delphi’s and GM’s respective positions in all commercial discussions and claims matters between them, all collective bargaining matters involving the parties, in any potential proceedings under Sections 1113 and/or 1114 of the Bankruptcy Code with respect to the UAW and under Section 365 of the Bankruptcy Code with respect to GM’s contracts with Delphi, in any pension termination proceeding under ERISA and/or the Bankruptcy Code, and all claims administration and allowance matters.

The UAW believes that our bankruptcy system is broken, and urgently needs to be reformed to stop these types of abuses. Congress enacted Sections 113 and 1114 of the Bankruptcy Code to stop companies from using the bankruptcy process as a device to destroy collective-bargaining agreements and retiree benefits. These provisions were supposed to promote legitimate, good-faith bargaining and the balancing of all parties’ interests, so that any modifications to wages and benefits would be limited to those that are absolutely necessary to prevent the liquidation of a company.