I
107TH CONGRESS
2D SESSION
H. R. 5221
To protect employees and retirees from corporate practices that deprive them
of their earnings and retirement savings when a business files for bank-
ruptcy under title 11, United States Code.
IN THE HOUSE OF REPRESENTATIVES
JULY 25, 2002
Mr. DELAHUNT introduced the following bill; which was referred to the
Committee on the Judiciary
A BILL
To protect employees and retirees from corporate practices
that deprive them of their earnings and retirement sav-
ings when a business files for bankruptcy under title
11, United States Code.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Employee Abuse Prevention Act of 2002’’.
(b) TABLE OF CONTENTS.—The table of contents for
this Act is as follows:
Sec. 1. Short title.
TITLE I—PRESERVING CORPORATE ASSETS.
Sec. 101. Federal fraudulent transfer amendments.
Sec. 102. Transparent characterization of transactions.
Sec. 103. Trustee as good faith reliance purchaser for value.
Sec. 104. Limitation on retention bonuses, severance pay, and certain other
payments.
Sec. 105. Limitation on avoidance of certain transfers.
Sec. 106. Effective date.
TITLE II—ENHANCING THE TREATMENT OF EMPLOYEE CLAIMS.
Sec. 201. Fair treatment of employee benefits.
Sec. 202. Wage priority and employee benefit cap.
Sec. 203. Enhanced treatment of claims arising from failure to meet fiduciary
obligations toward employees and retirees.
Sec. 204. Enhanced review of pre-bankruptcy terminations of retiree benefits.
Sec. 205. Local filing of bankruptcy cases.
Sec. 206. Effective date.
TITLE I—PRESERVING
CORPORATE ASSETS.
SEC. 101. FEDERAL FRAUDULENT TRANSFER AMEND-
MENTS.
Section 548 of title 11, United States Code, is
amended—
(1) in subsection (a)(1)—
(A) by striking ‘‘one year’’ and inserting
‘‘4 years’’;
(B) in subparagraph (A), by striking ‘‘or’’
at the end;
(C) in subparagraph (B), by striking the
period at the end and inserting ‘‘; or’’; and
(D) by adding at the end the following:
‘‘(C) made an excess benefit transfer or in-
curred an excess benefit obligation to an insider,
general partner, or other affiliated person of the
debtor, if the debtor—
‘‘(i) was insolvent on the date on which the
transfer was made or the obligation was in-
curred; or
‘‘(ii) became insolvent as a result of the
transfer or obligation.’’; and
(2) in subsection (d)(2)—
(A) in subparagraph (C), by striking
‘‘and’’ at the end;
(B) in subparagraph (D), by striking the
period at the end and inserting ‘‘; and’’; and
(C) by adding at the end the following:
‘‘(E) the terms ‘excess benefit transfer’
and ‘excess benefit obligation’ mean—
‘‘(i) a transfer or obligation, as appli-
cable, to an insider, general partner, or
other affiliated person of the debtor in an
amount that is not less than 10 times the
amount of the mean transfer or obligation
of a similar kind given to nonmanagement
employees during the calendar year in
which the transfer is made or the obliga-
tion is incurred; or
‘‘(ii) if no such similar transfers were
made to, or obligations incurred for the
benefit of, such nonmanagement employees
during such calendar year, a transfer or
obligation that is in an amount that is not
less than 25 percent more than the amount
of any similar transfer or obligation made
to or incurred for the benefit of such in-
sider, partner, or other affiliated person of
the debtor during the calendar year before
the year in which such transfer is made or
obligation is incurred.’’.
SEC. 102. TRANSPARENT CHARACTERIZATION OF TRANS-
ACTIONS.
Section 105 of title 11, United States Code, is
amended by adding at the end the following:
‘‘(e)(1) Notwithstanding any otherwise applica-
ble provision of law, the court may recharacterize as
a secured loan, a sale, lease, or transaction if the
material characteristics of the sale, lease, or trans-
action are substantially similar to the characteristics
of a secured loan.
‘‘(2) Nothing in paragraph (1) shall be con-
strued to modify, impair, or supersede any other au-
thority the court has to recharacterize a sale, lease,
or transaction.’’.
SEC. 103. TRUSTEE AS GOOD FAITH RELIANCE PURCHASER
FOR VALUE.
(a) TRUSTEE AS LIEN CREDITOR.—Section 544(a) of
title 11, United States Code, is amended—
(1) by inserting ‘‘, the debtor,’’ after ‘‘knowl-
edge of the trustee’’;
(2) by inserting ‘‘, property of the estate,’’ after
‘‘property of the debtor’’;
(3) in paragraph (2), by striking ‘‘or’’ at the
end;
(4) in paragraph (3), by striking the period at
the end and inserting ‘‘; or’’; and
(5) by adding at the end the following:
‘‘(4) a good faith purchaser of property that—
‘‘(A) gave value for such property as of the
time of the commencement of the case;
‘‘(B) gave such value in reliance on incor-
rect information contained in any public reg-
istry of security interests or liens; and
‘‘(C) either—
‘‘(i) took possession of the property,
whether or not such creditor actually could
take possession of the property; or
‘‘(ii) satisfied any applicable non-
bankruptcy law such that no creditor on a
simple contract could have obtained a prior
judicial lien on such property whether or
not such a creditor exists.’’.
(b) PREFERENCES.—Section 547(e)(1)(B) of title 11,
United States Code, is amended by striking ‘‘creditor on
a simple contract cannot acquire a judicial lien’’ and in-
serting ‘‘good faith purchaser for value of such fixture or
property that reasonably relied on available information
cannot acquire an interest’’.
SEC. 104. LIMITATION ON RETENTION BONUSES, SEVER-
ANCE PAY, AND CERTAIN OTHER PAYMENTS.
Section 503 of title 11, United States Code, is
amended by adding at the end the following:
‘‘(c)(1) Notwithstanding subsection (b), there shall
neither be allowed, nor paid—
‘‘(A) a transfer made to, or an obligation in-
curred for the benefit of, an insider of the debtor for
the purpose of inducing such person to remain with
the debtor’s business, absent a finding by the court
based on evidence in the record that—
‘‘(i) the transfer or obligation is essential
to retention of the person because the individual
has a bona fide job offer from another business
at the same or greater rate of compensation;
‘‘(ii) the services provided by the person
are essential to the survival of the business; and
‘‘(iii) either—
‘‘(I) the amount of the transfer made
to, or obligation incurred for the benefit of,
the person is not greater than an amount
equal to 10 times the amount of the mean
transfer or obligation of a similar kind
given to nonmanagement employees for
any purpose during the calendar year in
which the transfer is made or the obliga-
tion is incurred; or
‘‘(II) if no such similar transfers were
made to, or obligations were incurred for
the benefit of, such nonmanagement em-
ployees during such calendar year, the
amount of the transfer or obligation is not
greater than an amount equal to 25 per-
cent of the amount of any similar transfer
or obligation made to or incurred for the
benefit of such insider for any purpose
during the calendar year before the year in
which such transfer is made or obligation
is incurred;
‘‘(B) a severance payment to an insider of the
debtor, unless—
‘‘(i) the payment is part of a program that
is generally applicable to all full-time employees;
and
‘‘(ii) the amount of the payment is not
greater than 10 times the amount of the mean
severance pay given to nonmanagement employ-
ees during the calendar year in which the pay-
ment is made; or
‘‘(C) other transfers or obligations that are out-
side the ordinary course of business and not justified
by the facts and circumstances of the case.
‘‘(2) For purposes of paragraph (1)(C), transfers
made to, or obligations incurred for the benefit of, officers,
managers, or consultants hired after the date of the filing
of the petition shall be considered outside the ordinary
course of business.’’.
SEC. 105. LIMITATION ON AVOIDANCE OF CERTAIN TRANS-
FERS.
Section 546(e) of title 11, United States Code, is
amended to read as follows:
‘‘(e) Notwithstanding section 544, 545, 547,
548(a)(1)(B), or 548(b), the trustee—
‘‘(1) may not avoid any transfer that is a mar-
gin payment (as defined in section 101, 741, or 761)
or settlement payment (as defined in section 101 or
741) that is made before the commencement of the
case to any entity, including any commodity broker,
forward contract merchant, stockbroker, financial in-
stitution, or securities clearing agency, unless that
entity—
‘‘(A) receives the transfer or the benefit of
the transfer on behalf of its own account; or
‘‘(B) made such transfer with actual intent
to hinder, delay, or defraud any entity, as pro-
vided in section 548(a)(1)(A); and
‘‘(2) may avoid a transfer described in para-
graph (1) with respect to any entity that receives the
benefit of the transfer or on whose behalf the trans-
fer is made.’’.
SEC. 106. EFFECTIVE DATE.
This title and the amendments made by this title
shall take effect on the date of enactment of this Act with
respect to cases and proceedings arising under title 11,
United States Code, or arising in or related to cases or
proceedings arising under title 11, United States Code,
that are pending on or commenced before, on, or after the
date of enactment of this Act.
TITLE 
II—ENHANCING 
THE
TREATMENT 
OF 
EMPLOYEE
CLAIMS.
SEC. 201. FAIR TREATMENT OF EMPLOYEE BENEFITS.
(a) DEFINITION OF CLAIM.—Section 101(5) of title
11, United States Code, is amended—
(1) in subparagraph (A), by striking ‘‘or’’ at
the end;
(2) in subparagraph (B), by inserting ‘‘or’’
after the semicolon; and
(3) by adding at the end the following:
‘‘(C) right or interest in equity securities
of the debtor, or an affiliate of the debtor, held
in a pension plan (within the meaning of sec-
tion 3(2) of the Employee Retirement Income
Security Act of 1974 (29 U.S.C. 1002(2))) for
the benefit of an individual who is not an offi-
cer or director of the debtor, if such securities
were attributable to—
‘‘(i) employer contributions by the
debtor or an affiliate of the debtor other
than elective deferrals (within the meaning
of section 402(g) of the Internal Revenue
Code of 1986), and any earnings thereon;
and
‘‘(ii) elective deferrals (and any earn-
ings thereon) that are required to be in-
vested in such securities under the terms
of the plan or at the direction of a person
other than the individual or any bene-
ficiary,
except that this subparagraph shall not apply to
any such securities during any period during
which the individual or any beneficiary has the
right to direct the plan to divest such securities
and to reinvest an equivalent amount in other
investment options of the plan;’’.
(b) PRIORITIES.—Section 507(a)(4) of title 11,
United States Code, is amended—
(1) in subparagraph (B), by indenting the left
margin of clauses (i) and (ii) 2 ems to the right and
redesignating such clauses as subclauses (I) and
(II), respectively;
(2) by indenting the left margin of subpara-
graphs (A) and (B) 2 ems to the right and redesig-
nating such subparagraphs as clauses (i) and (ii),
respectively;
(3) in the matter preceding clause (i), as so re-
designated, by striking ‘‘Fourth’’ and all that follows
through ‘‘plan—’’ and inserting the following:
‘‘Fourth—
‘‘(A) allowed unsecured claims for con-
tributions to an employee benefit plan—’’;
(4) by striking the period at the end and insert-
ing the following: ‘‘or’’; and
(5) by adding at the end the following:
‘‘(B) allowed claims with respect to rights
or interests in equity securities of the debtor, or
an affiliate of the debtor, that are held in a
pension plan (within the meaning of section
3(2) of the Employee Retirement Income Secu-
rity Act of 1974 (29 U.S.C. 1002(2))), without
regard to when services were rendered or limita-
tion in amount, and measured by the market
value of the stock at the time the stock was
contributed to, or purchased by, the plan.’’.
SEC. 202. WAGE PRIORITY AND EMPLOYEE BENEFIT CAP.
Section 507(a) of title 11, United States Code, is
amended—
(1) in paragraph (3), by striking ‘‘$4,000’’ and
inserting ‘‘$13,500’’; and
(2) 
in 
paragraph 
(4)(B)(i), 
by 
striking
‘‘$4,000’’ and inserting ‘‘$13,500’’.
SEC. 203. ENHANCED TREATMENT OF CLAIMS ARISING
FROM FAILURE TO MEET FIDUCIARY OBLIGA-
TIONS TOWARD EMPLOYEES AND RETIREES.
(a) TREATMENT AS ADMINISTRATIVE EXPENSE.—
Section 503(b) of title 11, United States Code, is
amended—
(1) in paragraph (5), by striking ‘‘and’’ at the
end;
(2) in paragraph (6), by striking the period at
the end and inserting ‘‘; and’’; and
(3) by adding at the end the following:
‘‘(7) claims arising out of the breach of any fi-
duciary duty under part 4 of subtitle B of title I of
the Employee Retirement Income Security Act of
1974 (29 U.S.C. 1101 et seq.) or State law with re-
spect to any pension plan maintained by the debtor,
along with any reasonable fees, costs, or charges re-
lated to those claims.’’.
(b) DETERMINATION OF SECURED STATUS.—Section
506 of title 11, United States Code, is amended by adding
at the end the following:
‘‘(e) Any pension plan or any participant or bene-
ficiary of such plan with administrative expense claims de-
scribed in section 503(b)(7) may recover any unpaid
amount of such claims from any property securing an al-
lowed secured claim.
(c) PRIORITY.—Section 507(b) of title 11, United
States Code, is amended—
(1) by striking ‘‘(b) If’’ and inserting the fol-
lowing:
‘‘(b)(1) If’’; and
(2) by adding at the end the following:
‘‘(2) A claim allowable under section 503(b)(7) shall
have priority over every other claim allowable under sub-
section (a)(1) of this section.’’.
SEC. 204. ENHANCED REVIEW OF PRE-BANKRUPTCY TERMI-
NATIONS OF RETIREE BENEFITS.
Section 1114 of title 11, United States Code, is
amended by adding at the end the following:
‘‘(m)(1) If any retiree benefits have been modified
within the 180-day period before the date of the filing of
the petition, the court shall appoint an authorized rep-
resentative pursuant to subsection (b) to investigate the
modification of retiree benefits and to enforce the rights
of persons under this title as they relate to retiree benefits.
‘‘(2) If the court determines, after notice and a hear-
ing, that the modification of retiree benefits was made in
contemplation of bankruptcy and was not essential to the
continuation of the business of the debtor, the court shall
order that—
‘‘(A) the modified retiree benefits be reinstated
effective as of the date on which the retiree benefits
were modified; and
‘‘(B) 
the 
trustee 
promptly 
perform 
all
unperformed obligations of the debtor to provide re-
tiree benefits, as reinstated, for the period dating
from the date of the modification to the date of the
filing of the petition.
‘‘(3) For purposes of this subsection, any modifica-
tion of retiree benefits within the 180-day period before
the date of the filing of the petition is presumed to have
been made in contemplation of bankruptcy, and the trust-
ee has the burden of proving that the modification of re-
tiree benefits was not made in contemplation of bank-
ruptcy.
‘‘(4) For purposes of this subsection, the term ‘retiree
benefits’ means any employee benefits provided to a retiree
or a beneficiary of a retiree.’’.
SEC. 205. LOCAL FILING OF BANKRUPTCY CASES.
(a) VENUE OF CASES UNDER TITLE 11.—Section
1408 of title 28, United States Code, is amended—
(1) by striking ‘‘Except’’ and inserting the fol-
lowing:
‘‘(a) Except’’;
(2) in paragraph (2), by inserting ‘‘as defined
in section 101(2)(A) of title 11’’ after ‘‘affiliate’’;
and
(3) by adding at the end the following:
‘‘(b) For purposes of subsection (a)—
‘‘(1) if the debtor is a corporation, the domicile
and residence of the debtor are conclusively pre-
sumed to be where the debtor’s principal place of
business in the United States is located; and
‘‘(2) if an affiliate, as defined in section
101(2)(A) of title 11, is not a debtor in a case under
title 11, but the debtor is an affiliate as defined in
subparagraph (B), (C), or (D) of that section, then
the bankruptcy case may be filed in the district in
which the principal place of business of the affiliate
with the greatest assets in the United States is lo-
cated.’’.
(b) CHANGE OF VENUE.—Section 1412 of title 28,
United States Code, is amended—
(1) by striking ‘‘A’’ and inserting the following:
‘‘(a) A’’; and
(2) by adding at the end the following:
‘‘(b) The district court of a district in which is filed
a case laying venue in the wrong division or district shall
dismiss, or if it be in the interest of justice, transfer such
case to any district or division in which it could have been
brought.
‘‘(c) Nothing in this chapter shall impair the jurisdic-
tion of a district court of any matter involving a party
who does not interpose timely and sufficient objection to
the venue.
‘‘(d) As used in this section—
‘‘(1) the term ‘‘district court’’ includes—
‘‘(A) the bankruptcy judges of each such
court as defined in section 151 of this title; and
‘‘(B) the District Court of Guam, the Dis-
trict Court for the Northern Mariana Islands,
and the District Court of the Virgin Islands, in-
cluding any bankruptcy judge of each such
court; and
‘‘(2) the term ‘‘district’’ includes the territorial
jurisdiction of each such court.’’.
SEC. 206. EFFECTIVE DATE.
(a) IN GENERAL.—Except as provided in subsection
(b), this title and the amendments made by this title shall
take effect on the date of enactment of this Act with re-
spect to cases and proceedings arising under title 11,
United States Code, or arising in or related to cases or
proceedings arising under title 11, United States Code,
that are pending on or commenced before, on, or after the
date of enactment of this Act.
(b) LIENS.—The amendment made by section 203(b)
shall only apply to liens created on or after the date of
enactment of this Act.
Æ