Liquidating 1113 collective bargaining
1988), the Sixth Circuit ruled that, by failing to pay retiree health benefits owed under a labor agreement, the debtor had unilaterally modified the agreement in violation of Section 1113.
Given the potential significance of continued pension funding, whether or not to fund thus may be a matter of "location, location, location." Most courts outside the Sixth Circuit have followed the Ionosphere line of reasoning.
For instance, rules generally prohibiting preferential payment of pre-bankruptcy debts and establishing the basis for paying expenses of administering the debtor's business can be applied to many payment obligations, including pension contributions.
In addition, whether or not the employer has decided to terminate the plan, the union may be concerned that PBGC may take action to involuntarily terminate a plan where the employer fails to make the required contributions.For the courts that have followed Ionosphere, a failure to pay is not the same as a unilateral change in the agreement because the obligation simply becomes a claim in the bankruptcy and does not disappear altogether.However, the facts in the Ionosphere-type cases generally are different from the scenario described in the companion article, where a debtor at the beginning of a bankruptcy case tries to maintain a semblance of "business as usual" through "first day" requests to make various payments that might be considered pre-petition claims.In order to enforce its collective bargaining agreement (and stave off a decision by PBGC to seek involuntary termination), the union may seek to compel continued contribution payments. Enacted in 1984, Section 1113 protects collective bargaining agreements in two ways.
In doing so, the union can take advantage of special rules under bankruptcy law that apply to obligations under a collective bargaining agreement. First, unlike other contracts of the debtor, collective bargaining agreements may only be rejected if the debtor follows procedures and meets a heightened standard detailed in the statute.(PBGC) and perhaps other stakeholders into a protracted dispute can undermine the debtor's efforts to stabilize the bankruptcy case.