Los Angeles Bankruptcy Attorney, Bankruptcy Lawyer, Bankruptcy Code 11 USC Section 926

TITLE 11 - BANKRUPTCY
CHAPTER 9 - ADJUSTMENT OF DEBTS OF A MUNICIPALITY
    SUBCHAPTER II - ADMINISTRATION

-HEAD-
    Sec. 926. Avoiding powers

-STATUTE-
      (a) If the debtor refuses to pursue a cause of action under
    section 544, 545, 547, 548, 549(a), or 550 of this title, then on
    request of a creditor, the court may appoint a trustee to pursue
    such cause of action.
      (b) A transfer of property of the debtor to or for the benefit of
    any holder of a bond or note, on account of such bond or note, may
    not be avoided under section 547 of this title.

-SOURCE-
    (Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2623; Pub. L. 100-597, Sec.
    6, Nov. 3, 1988, 102 Stat. 3029.)


                       HISTORICAL AND REVISION NOTES                   

                          LEGISLATIVE STATEMENTS                      
      Section 926 of the House amendment is derived from section 928 of
    the Senate bill. The provision enables creditors to request the
    court to appoint a trustee to pursue avoiding powers if the debtor
    refuses to exercise those powers. Section 901 of the House
    amendment makes a corresponding change to incorporate avoiding
    powers included in the Senate amendment, but excluded from the
    House bill.

                         SENATE REPORT NO. 95-989                     
      This section [928 (enacted as section 926)] adopts current
    section 85(h) [section 405(h) of former title 11] which provides
    for a trustee to be appointed for the purpose of pursuing an action
    under an avoiding power, if the debtor refuses to do so. This
    section is necessary because a municipality might, by reason of
    political pressure or desire for future good relations with a
    particular creditor or class of creditors, make payments to such
    creditors in the days preceding the petition to the detriment of
    all other creditors. No change in the elected officials of such a
    city would automatically occur upon filing of the petition, and it
    might be very awkward for those same officials to turn around and
    demand the return of the payments following the filing of the
    petition. Hence, the need for a trustee for such purpose.
      The general avoiding powers are incorporated by reference in
    section 901 and are broader than under current law. Preference,
    fraudulent conveyances, and other kinds of transfers will thus be
    voidable.
      Incorporated by reference also is the power to accept or reject
    executory contracts and leases (section 365). Within the definition
    of executory contracts are collective bargaining agreements between
    the city and its employees. Such contracts may be rejected despite
    contrary State laws. Courts should readily allow the rejection of
    such contracts where they are burdensome, the rejection will aid in
    the municipality's reorganization and in consideration of the
    equities of each case. On the last point, "[e]quities in favor of
    the city in chapter 9 will be far more compelling than the equities
    in favor of the employer in chapter 11. Onerous employment
    obligations may prevent a city from balancing its budget for some
    time. The prospect of an unbalanced budget may preclude judicial
    confirmation of the plan. Unless a city can reject its labor
    contracts, lack of funds may force cutbacks in police, fire,
    sanitation, and welfare services, imposing hardships on many
    citizens. In addition, because cities in the past have often seemed
    immune to the constraint of "profitability" faced by private
    businesses, their wage contracts may be relatively more onerous
    than those in the private sector." Executory Contracts and
    Municipal Bankruptcy, 85 Yale L. J. 957, 965 (1976) (footnote
    omitted). Rejection of the contracts may require the municipalities
    to renegotiate such contracts by state collective bargaining laws.
    It is intended that the power to reject collective bargaining
    agreements will pre-empt state termination provisions, but not
    state collective bargaining laws. Thus, a city would not be
    required to maintain existing employment terms during the
    renegotiation period.

                                AMENDMENTS                            
      1988 - Pub. L. 100-597 designated existing provisions as subsec.
    (a) and added subsec. (b).

                     EFFECTIVE DATE OF 1988 AMENDMENT                 
      Amendment by Pub. L. 100-597 effective Nov. 3, 1988, but not
    applicable to any case commenced under this title before that date,
    see section 12 of Pub. L. 100-597, set out as a note under section
    101 of this title.

-End-
Professional Membership
