Daniel Davies writes: >> Oh come on David this is wilfully missing the point. Workers are a favoured >> bankruptcy constituency only for salaries earned but not paid (ie they are >> only a favoured constituency for the amounts for which they are actual >> creditors of the company). As far as reneging on labour contracts (and even >> pension benefits are concerned), this is one of the first things that >> companies are allowed to do in Chapter 11. The factor that Michael has >> correctly identified is that, practically alone among contracts, collective >> labour bargaining agreements are these days treated as if they weren't >> really proper contracts and the employer is allowed to just chuck them away >> when they become onerous. This is one of the main reasons for the high >> levels of bankruptcy in some industries; it is quite easy to structure your >> company so it is going to go bankrupt and Chapter 11 is a normal tool of >> labour relations in some industries.
You (and others) don't have to believe me, but I am not making this up. Under the Bankruptcy Code, corporations have the right to "reject" ((stop performing under) essentially ALL of their contracts. For instance, in the US, almost every theater chain when through chapter 11 several years ago for one reason -- get out of bad real real estate leases entered into when the chains overexpanded. There was nothing the landlords could do. Corporations file chapter 11 to get out of disfavorable supply contracts. The list goes on, and there is nothing the non-debtor party can do. Alone among contracts, there are special rules making it difficult for corporations to get out of collective bargaining and pension agreements. In order to stop performing under these agreements, the corporation must essentially present financial projections to the Bankruptcy Court that demonstrate the corporation will have to liquidate unless the agreements are modfified. The unions, retirees, PBGC all have the opportunity to respond and demonstrate alternatives. There are actually very few cases where the corporations have successfully modified those agreements. Those cases are often large and get a lot of attention, but they remain rare overall. David Shemano
