New York's Senator
CHARLES E. SCHUMER

FOR IMMEDIATE RELEASE March 13, 2001

SENATE ACCEPTS SCHUMER AMENDMENT TO BANKRUPTCY BILL TO PREVENT COLLAPSE OF COMPANIES WHO FILE FOR CHAPTER 11

Unamended Legislation Contained Provisions That Would Have Made It Difficult For Companies Who File For Chapter 11 To Reorganize

Amendment Will Help New York Companies - Particularly Large Retailers - Who Have Used Bankruptcy Code To Stay In Business

US Senator Charles E. Schumer today announced that the Senate will accept an amendment he offered to the Bankruptcy Reform Act of 2001 to ensure that the bill does not impede the ability of firms who have filed for Chapter 11 to reorganize and resurface as viable businesses. Without Schumer's amendment, the bill could have caused major New York companies - particularly large retailers - to close their doors because of two provisions in the legislation that would have made it near impossible for Chapter 11 companies to effectively and quickly reorganize.

"Had this legislation passed without this amendment, retailers who use our bankruptcy code to get back on their feet would have seen their 'sale' signs replaced with 'for sale' signs," said Schumer. "This amendment will ensure that the bankruptcy reform bill does not put a stranglehold on the ability of companies in New York City and around the nation to reorganize. With a potential economic downturn on the horizon, we can't afford to let New York City companies choose liquidation over reorganization."

Sections 708 and 321 of the bankruptcy reform bill would have created a new right to allow corporate creditors to claim fraud as a basis for excluding their claims from discharge during proceedings. The section would have led to spurious claims of fraud by creditors looking to gain an advantage over other creditors, adding major expense and delay to many Chapter 11 cases and further burdening already busy bankruptcy courts. These delays could have prevented a company from confirming a reorganization plan and eventually forced it to abandon reorganization altogether.

Schumer's amendment changes Sections 708 and 321 to only allow domestic governmental units - the federal government, states, and local government bodies - and successful whistle-blowers who are bringing qui tam lawsuits to have their claims excluded on the basis of fraud. Schumer said that the single exception was important since "debtors should not be allowed to impose a burden on taxpayers and the general public through fraud."

The current bankruptcy code has helped thousands of New York City businesses who have filed for Chapter 11 to quickly reorganize and become financially viable again. In 1998, 700 companies in Chapter 11 were able to reorganize, and while some ultimately folded, others have continued to produce goods, employ people, and pay taxes . Pathmark, for example, reorganized in 60 days after filing for Chapter 11 in 2000, saving 10,000 jobs. Macy's, Barneys and Ames Department Stores also went through Chapter 11 reorganizations in recent years, preventing thousands of layoffs in the city and across the state.

Schumer warned that without the amendment, the new law might have delivered a harsh blow to New York City's economy if the nation's recent economic downturn worsens and more companies were forced into Chapter 11. Instead of reorganizing, Schumer predicted that more of these companies could be forced to liquidate, forcing layoffs and creating major real estate vacancies and lost city tax revenue.

"New York City is the fashion and retail capital of the world," said Schumer. "This amendment preserves the protections in our current bankruptcy code so we can keep it that way."

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