With the COVID-19 pandemic creating a significant upswing in Chapter 11 bankruptcies and with more expected to come, Congress is once again considering substantial changes to the way the Bankruptcy Code addresses worker compensation, retiree benefits and collective bargaining agreements with the Protecting Employees and Retirees in Business Bankruptcies Act of 2020 (PERBBA), introduced recently in both the House and the Senate (House Bill 7370; Senate Bill 4089). PERBBA is the latest iteration of legislation designed to add additional worker protections to business bankruptcies and to make it more difficult for companies to reject collective bargaining agreements in bankruptcy.
Specifically, PERBBA proposes the following changes to claims related to worker compensation and benefits:
Other provisions of PERBBA include:
Overall, these changes may create challenges for employers to reduce their operating expenses in Chapter 11. The increases in priority claims may also make it more difficult for large employers to obtain sufficient capital to pay priority claims and confirm a plan, particularly if WARN Act or other similar laws were violated.
PERBBA was first introduced to Congress in 2007, following the collapse of Enron, and has been repeatedly introduced since then. None of the prior bills have been successful, and this iteration has yet to garner bipartisan support. However, the impact of the continuing pandemic on businesses and their employees may create bipartisan interest in PERBBA that previously has been lacking.
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