• Weathering the Storm: Third Circuit Rules Regardless of Plan Reservation of Rights Language, Bankruptcy Debtor Must Comply with the Bankruptcy Code to Amend, Modify or Eliminate Retiree Benefit
  • September 29, 2010 | Authors: Arthur T. Carter; Michael E. Foreman; Stephen M. Pezanosky
  • Law Firms: Haynes and Boone, LLP - Dallas Office ; Haynes and Boone, LLP - New York Office ; Haynes and Boone, LLP - Austin Office ; Haynes and Boone, LLP - Dallas Office ; Haynes and Boone, LLP - Fort Worth Office
  • Once a company files a Chapter 11 bankruptcy petition (to sell its assets, reorganize or liquidate), Bankruptcy Code § 1114 sets forth a detailed procedure for the employer to follow to modify or terminate certain retiree benefits. Among other things, § 1114 imposes on the employer the burden of showing that the elimination or modification of benefits is necessary to permit reorganization. Since the enactment of § 1114 in 1988, a recurring issue has been whether these procedures need to be followed where, as is frequently the case, the retiree benefits plan contains a reservation of rights permitting unilateral amendment, modification or termination by the employer. A number of Bankruptcy and United States District Courts have ruled on this issue, with a majority of them concluding that such reservation of rights language renders § 1114 inapplicable.