New bankruptcy law has impact on business lawyers and their clients, say panelists

Enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act last year generated much discussion about its effect on the practice of bankruptcy law. Beyond the lawyer liability provisions, how did the act's provisions change the strategies lawyers employ, the procedures they use and the counsel they give their clients?

A program at the ABA Business Law Section's Young Lawyer Institute, held April 6 during the section's Spring Meeting in Tampa, helped business lawyers answer some of these questions. A panel of five experienced business bankruptcy lawyers talked about the practical impact of the new bankruptcy law on commercial real estate leases, automatic stays, cases involving health care entities, employee retention and preferential transfers of property.

Changes to §365 of the Bankruptcy Code will influence business debtors' reorganization efforts, said Jordi Guso of Miami, especially debtors with many leased locations. Overall, the amendments shift significant power to landlords, who can force a debtor's hand, and in most instances will request some form of compensation before consenting to extensions of the deadline to assume a lease. The debtor must decide quickly what to do with its leases.

Lisa P. Sumner of Raleigh, N.C., discussed changes to §362 that create an automatic stay of actions to collect claims against a debtor after the filing of a bankruptcy petition, including new exceptions to the automatic stay, termination of the stay and the impact of "effective notice" on claims for stay violations.

According to Timothy Lupinacci of Birmingham, Ala., the act creates new requirements for health care entities filing under the bankruptcy code. He talked about how the new law treats the storage and disposal of patient records, patient transfers, reimbursement of costs related to closing a health care business, appointing a patient care ombudsman and other issues.

The act also changed portions of the code governing debtors' retention of employees during reorganization and the rights of entities that sold goods to a debtor, said J. Rudy Freeman of Los Angeles. The amendments relate to issues such as bonuses paid to keep workers and the process by which a seller may seek to recover goods from a debtor.

Erin E. Jones of Houston explained how trustees may avoid or recover preferential transfers of property under §547 of the Bankruptcy Code. Because preference claims can be costly to litigate, Jones said, performing a cost-benefit analysis and considering early mediation as an alternative to a claim can reduce stress and save money.

Materials that accompanied the panelists' presentations and treat each of these issues in greater detail are available to ABA members here free of charge.

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