Bill Allows U.S. Courts to Recover
Executive Bonuses in Bankruptcy
Sen. Chuck Grassley (R-Iowa) introduced legislation on Wednesday that
would allow bankruptcy courts to recover bonuses, loans and other
compensation from corporate executives whose companies are in
bankruptcy, Dow Jones reported. 'Corporate executives and wrongdoers
shouldn't be allowed to prosper when their actions contribute to a
company going bankrupt. The mismanagement and irresponsibility of these
bigwigs shouldn't be rewarded,' Grassley said in a statement. Grassley
is the chairman of the Senate Finance Committee and the chief sponsor of
a massive bankruptcy reform bill in the Senate. The Corporate
Accountability in Bankruptcy Act would clarify that bankruptcy trustees
can seize such assets, including non-qualified deferred compensation,
made to a corporate insider, officer or director within one year before
the date of the bankruptcy filing. If the employee has violated
securities or accounting rules, trustees could recover payments made
within four years of a filing. Grassley said the legislation is
necessary because the courts haven't clearly ruled whether bonuses and
other excessive compensation are avoidable in bankruptcies among
publicly traded companies, reported the newswire.
CFA, NCLC Release Study Targeting Credit Counseling
Agencies
The Consumer Federation of America and the National Consumer Law Center
yesterday released a report criticizing credit counseling agencies,
stating that consumers drowning in credit-card debt often get bad advice
from them and are frequently deceived and charged excessive fees,
according to The Associated Press. The criticism came soon after the
House overwhelmingly approved bankruptcy reform legislation (which would
require consumers to receive credit counseling before filing for
bankruptcy protection). The growing business of credit counseling, which
is heavily advertised, has seen an increase in abusive practices and
outright scams, the report says. In addition, consumer advocates state
that many counseling agencies trade on their nonprofit status to gouge
consumers. 'More consumers are getting bad advice and access to fewer
real counseling options,' Deanne Loonin, an attorney with the NCLC, said
at a news conference. 'Meanwhile, most state and federal regulators
appear to be asleep at the switch.'
Each year, an estimated 9 million Americans have some contact with
such counselors, and the counseling agencies say they act responsibly
and provide a valuable service to consumers. Because of shrinking
funding in recent years from creditors—mainly big banks that issue
credit cards—many agencies that belong to the National Foundation
for Credit Counseling have had to begin charging nominal fees, the group
says. Critics say that counseling agencies vary widely in quality and
that many operate honestly and help consumers in financial distress.
However, the new report 'goes a long way in helping to articulate the
issues that need attention in this burgeoning industry,' said Lydia
Sermons Ward, senior vice president for marketing and communications of
the National Foundation for Credit Counseling. She said the group's 143
members nationwide 'have to abide by specific operating and
customer-service standards that ... would preclude them from operating
deceptively.' To read the full article, point your browser to
href='http://seattlepi.nwsource.com/business/apbiz_story.asp?category=1310&sl…'>http://seattlepi.nwsource.com/business/apbiz_story.asp?category=1310&sl….
Spitzer Assails Provision of Bill to Overhaul Bankruptcy
Law
New York State Attorney General Eliot Spitzer is publicly opposing a
legislative bid backed by financial firms that would allow them to reap
additional fees from advising companies in bankruptcy, the Wall
Street Journal reported. In an interview on Wednesday, Mr. Spitzer
assailed a provision of a bill to overhaul federal-bankruptcy law that
would roll back current conflict-of-interest rules, allowing securities
firms to work on bankruptcy-court restructurings even if they had
advised the same companies as underwriters in the preceding two years.
Currently, such bankruptcy work is prohibited. 'Intuitively I am opposed
to this amendment,' he said, particularly after the last year's
regulatory inquiries of Wall Street stock-research conflicts. 'I would
certainly hope that Congress would step back and act in a more-prudent
manner,' reported the Journal. To read the full article, point
your browser to www.wsj.com
(subscription required).
Justice, Rights Groups Oppose Class Action Overhaul
Measure
The Lawyers' Committee for Civil Rights Under Law came out on Wednesday
strongly opposed to a class action reform bill on tap for markup today
in the Senate Judiciary Committee, CongressDaily reported. In a
letter to senators, the civil rights attorneys said they also are
opposed to a compromise struck between Sen. Dianne Feinstein (D-Calif.)
and Judiciary Chairman Orrin Hatch (R-Utah), which will be the first
amendment considered at today's markup. While narrowing the scope of the
pending corporate-backed bill, Feinstein's amendment still would allow
for many class action cases to be removed from state to federal court,
where businesses think they would fare better, reported the
newswire.
American Airlines Puts Forward Extra Raises for Ground
Union
AMR Corp.'s American Airlines agreed to sweeten the pot for its
ground-workers union, offering extra annual raises of as much as 4.5
percent if it can get back an investment-grade credit rating, in an
effort to win ratification of sweeping cost concessions, the Wall
Street Journal reported. American has made the same offer to both
its pilots and flight attendants. All three unions have until Monday
afternoon to ratify tentative agreements to cut labor costs by $1.8
billion annually. Rejection by any one of four work groups—pilots,
flight attendants, mechanics and other ground workers—would
trigger a bankruptcy filing next week, American says, reported the
online newspaper.
Oakland, California Schools Seek $100 Million State
Bailout
The Oakland school district, on the brink of bankruptcy, begged
lawmakers on Wednesday for a $100 million loan in what would be the
largest school bailout in state history, Dow Jones reported. Oakland
Unified School District officials blamed high salaries, rising expenses
and an antiquated accounting system for their troubles and said the
district will run out of money by May, leaving employees without pay and
47,000 students with an uncertain future. A state Senate committee
unanimously approved a bill on Wednesday to authorize the emergency
loan. The bill must still pass the appropriations committee and be
approved by two-thirds of both legislative houses, reported the
newswire.
Banks Seek to Force Allou Distributors Into Bankruptcy
Three lenders of Allou Healthcare Inc. on Wednesday sought to force the
health and beauty products distributor into bankruptcy-court proceedings
after the company was declared in default on about $67.7 million in
loans, Dow Jones reported. The banks, including Congress Financial
Corp., Citibank N.A. and LaSalle Business Credit Inc., filed an
involuntary chapter 11 petition in the U.S. Bankruptcy Court for the
Eastern District of New York, reported the newswire.
Judge Authorizes Globalstar to Negotiate Sale Deal
A bankruptcy judge on Wednesday authorized Globalstar LP to negotiate
the sale of a substantial equity stake in the company to Thermo Capital
Partners to fund Globalstar's emergence from chapter 11 as a going
concern, Dow Jones reported. Globalstar selected Thermo Capital's $55
million bid to buy a 67 percent equity stake in the debtor company as
the best offer received at an auction earlier this month. The order
signed by Chief Judge Peter J. Walsh of the U.S. Bankruptcy Court
in Wilmington, Del., authorizes Globalstar to negotiate the terms of the
deal with Thermo Capital. The order also authorizes the debtor company
to reimburse Thermo Capital for its expenses, should the deal fall
through by no fault of the prospective purchaser, reported the
newswire.
Former Budget Group Seeks 60 More Days of Exclusivity
The company formerly known as Budget Group Inc. is asking the court
overseeing its bankruptcy case to extend for 60 days, until June 2, its
exclusive period to file a reorganization plan, Dow Jones reported. The
entity, now known as BRAC Group, also wants its exclusive period to
solicit votes in support of the plan extended for 60 days, until Aug. 1,
according to court papers filed April 2 and obtained on Tuesday by Dow
Jones Newswires. A hearing on the proposed extension is scheduled for
April 21. BRAC Group said the U.S. Bankruptcy Court in Wilmington, Del.,
should grant the extension because of the company has made progress in
its chapter 11 bankruptcy case, reported the newswire.
HealthSouth's Scrushy Appears in Court on Asset Freeze
Order
ealthSouth Corp. founder Richard Scrushy, making his first public
appearance since U.S. regulators accused him of inflating earnings by
$1.4 billion, showed up in court yesterday to ask a judge to lift a
freeze on his assets, Bloomberg News reported. Scrushy is attending a
hearing before U.S. District Judge Inge Johnson, who is weighing whether
to extend a freeze she imposed after the U.S. Securities and Exchange
Commission sued Scrushy and HealthSouth for accounting fraud March 19.
Johnson had limited Scrushy to $15,000 in living expenses for a two-week
period that ends today as the ex-CEO defends the SEC charges and faces a
criminal investigation. Scrushy complained about the U.S. government's
tactics in court papers on Tuesday and asked Johnson to limit the
hearing to a request to lift the freeze on assets clearly not traceable
to any fraud, reported the newswire.
Hayes Lemmerz Wins Court Approval to Modify Reorganization
Plan
Hayes Lemmerz International Inc. won a judge's permission to supplement
its plan to pay creditors, Bloomberg News reported. The company, which
sought bankruptcy protection from creditors in 2001, modified its plan
to give secured creditors $453.5 million in cash, $25 million in new
senior notes and 53.1 percent of the reorganized company's stock.
Holders of senior notes will receive $13 million in cash and 44.9
percent of the stock, and unsecured creditors will get 2 percent of the
stock. The company filed for chapter 11 protection after struggling with
debt from acquisitions and slow sales as car manufacturers cut
production. The company also had to restate earnings because of
accounting errors, reported the newswire. U.S. Bankruptcy Judge Mary
Walrath granted permission at a hearing yesterday in Wilmington,
Del.
American Airlines Puts Forward Extra Raises for Ground
Union
AMR Corp.'s American Airlines agreed to sweeten the pot for its
ground-workers union, offering extra annual raises of as much as 4.5
percent if it can get back an investment-grade credit rating, in an
effort to win ratification of sweeping cost concessions, the Wall
Street Journal reported. American has made the same offer to both
its pilots and flight attendants. All three unions have until Monday
afternoon to ratify tentative agreements to cut labor costs by $1.8
billion annually. Rejection by any one of four work groups—pilots,
flight attendants, mechanics and other ground workers—would
trigger a bankruptcy filing next week, American says, reported the
online newspaper.
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