II 

109TH CONGRESS 

2D SESSION S. 2556 

To amend title 11, United States Code, with respect to reform of executive 

compensation in corporate bankruptcies. 

IN THE SENATE OF THE UNITED STATES 

APRIL 6, 2006 

Mr. BAYH introduced the following bill; which was read twice and referred to 

the Committee on the Judiciary 

A BILL 

To amend title 11, United States Code, with respect to 

reform of executive compensation in corporate bankruptcies. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Fairness and Account5 ability in Reorganizations Act of 2006’’. 

6 SEC. 2. FINDINGS. 

7 Congress finds that— 

8 (1) it is becoming more common for corpora9 tions that file for bankruptcy protection under chap10 ter 11 of title 11, United States Code, to ask for 


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1 great sacrifices from workers, retirees, creditors, and 

2 former shareholders, while executives provide them3 selves with generous bonuses and other forms of lu4 crative compensation; 

5 (2) in the case of one company, an executive 

6 pay package for key employees would have given ex7 ecutives and managers $510,000,000 in compensa8 tion, while rank-and-file workers were asked to take 

9 large wage cuts or forced to lose their jobs; 

10 (3) decency requires that the highly paid not 

11 seek to enrich themselves on the backs of working 

12 families; 

13 (4) some bankruptcies involve companies with 

14 both foreign and domestic operations, and judges 

15 need to be able to evaluate the entirety of the oper16 ations when deciding whether sacrifices by American 

17 workers and retirees are necessary; and 

18 (5) there is a need for fairness and account19 ability and a new partnership for the future of the 

20 American workforce. 

21 SEC. 3. EXECUTIVE COMPENSATION. 

22 Section 1129(a)(5) of title 11, United States Code, 

23 is amended— 

24 (1) in subparagraph (A)(ii), by striking ‘‘and’’ 

25 at the end; and 


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1 (2) in subparagraph (B), by striking the period 

2 at the end and inserting the following: ‘‘; and 

3 ‘‘(C) the compensation disclosed pursuant to 

4 subparagraph (B) has been approved by, or is sub5 ject to the approval of, the court, as reasonable.’’. 

6 SEC. 4. LIMITATIONS ON COMPENSATION ENHANCEMENTS. 

7 Section 503(c) of title 11, United States Code, is 

8 amended— 

9 (1) in paragraph (1), by inserting ‘‘, or for the 

10 payment of a performance, incentive, or other bonus, 

11 or any other compensation enhancement’’ after ‘‘re12 main with the debtor’s business’’; and 

13 (2) by striking paragraph (3) and inserting the 

14 following: 

15 ‘‘(3) other transfers or obligations, whether or 

16 not outside of the ordinary course of business, to or 

17 for the benefit of officers, managers, or consultants 

18 retained by the debtor, before or after the filing of 

19 the petition, in the absence of a finding by the court 

20 based upon evidence in the record, and without def21 erence to the debtor’s request for such payments, 

22 that such transfers or obligations are essential to the 

23 survival of the business or (in the case of a liquida24 tion of some or all of the debtors’ assets) essential 

25 to the orderly liquidation and maximization of value 


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1 of the assets of the debtor, in either case, because 

2 of the essential nature of the services provided, and 

3 then only to the extent that the court finds those 

4 transfers or obligations are reasonable under the cir5 cumstances of the case.’’. 

6 SEC. 5. TREATMENT OF FOREIGN AFFILIATES. 

7 (a) COLLECTIVE BARGAINING AGREEMENTS.—Sec8 tion 1113(d) of title 11, United States Code, is amended 

9 by adding at the end the following: 

10 ‘‘(4) FOREIGN AFFILIATES.—In determining whether 

11 the proposal required by subsection (b)(1) provides for 

12 those necessary modifications in employee benefits and 

13 protections that are necessary to permit the reorganization 

14 of the debtor and assures that all creditors, the debtor, 

15 and all affected parties are treated fairly and equitably, 

16 the court shall take into account the ongoing impact on 

17 the debtor of the debtor’s relationship with all subsidiaries 

18 and affiliates, regardless of whether any such subsidiary 

19 or affiliate is domestic or nondomestic, or whether any 

20 such subsidiary or affiliate is a debtor entity.’’. 

21 (b) RETIREE HEALTH BENEFITS.—Section 1114 of 

22 title 11, United States Code, is amended by adding at the 

23 end the following: 

24 ‘‘(n) RETIREE HEALTH BENEFITS; FOREIGN AFFILI25 ATES.—In determining whether the proposal required by 


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1 subsection (f)(1)(A) provides for those necessary modifica2 tions in retiree benefits that are necessary to permit the 

3 reorganization of the debtor and assures that all creditors, 

4 the debtor, and all affected parties are treated fairly and 

5 equitably, the court shall take into account the ongoing 

6 impact on the debtor of the debtor’s relationship with all 

7 subsidiaries and affiliates, regardless of whether any such 

8 subsidiary or affiliate is domestic or nondomestic, or 

9 whether any such subsidiary or affiliate is a debtor enti10 ty.’’. 

11 SEC. 6. EFFECTIVE DATE. 

12 Notwithstanding any other provision of law, the 

13 amendments made by this Act shall apply to any case 

14 under chapter 11 of title 11, United States Code, filed 

15 or pending on or after October 1, 2005. 

Æ 


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