New York's Senator
CHARLES E. SCHUMER

FOR IMMEDIATE RELEASE March 9, 2001

SCHUMER: PROPOSED REVISION TO BANKRUPTCY LAW COULD PUT NEW YORK CITY RETAILERS IN JEOPARDY

Bill Contains Change To Bankruptcy Code That Would Prevent ManyNew York Companies in Chapter 11 From Reorganizing and Staying in Business

Schumer Offers Amendment To Preserve Current Code, Help NY Companies

US Senator Charles E. Schumer today announced that he will offer an amendment to the Bankruptcy Reform Act of 2001 to ensure that the bill does not impede the ability of firms who have filed for Chapter 11 to reorganize and resurface as a viable business. Schumer warned that without his amendment, the bill could cause major New York companies - particularly large retailers - to close their doors and lay off thousands of workers because of a single clause in the legislation that would make it near impossible for Chapter 11 companies to effectively and quickly reorganize.

"Our current bankruptcy code has played a critical role in helping New York City retailers like Macy's, Ames Department Stores and Pathmark clean up their books and get back on their feet. But if these companies had faced the bankruptcy code created by this legislation, their 'sale' signs would have been replaced with 'for sale' signs," said Schumer. "Without my amendment, many companies could be forced to collapse because the bogus lawsuits will put a stranglehold on their ability to reorganize. With a potential economic downturn on the horizon, we can't afford to let New York City companies choose liquidation over reorganization."

The current bankruptcy code has helped thousands of New York City businesses who have filed for Chapter 11 to quickly reorganize and become financially viable again. In 1998, 700 companies in Chapter 11 were able to reorganize, and while some ultimately folded, others have continued to produce goods, employ people, and pay taxes. Pathmark, for example, reorganized in 60 days after filing for Chapter 11 in 2000, saving 10,000 jobs. Macy's and Ames Department Stores also went through Chapter 11 reorganizations in recent years, preventing thousands of layoffs in the city and across the state.

Section 708 of the proposed bankruptcy reform bill would create a new right that would allow corporate creditors to claim fraud as a basis for excluding their claims from discharge during proceedings. The section would likely lead to spurious claims of fraud by creditors looking to gain an advantage over other creditors, adding major expense and delay to many Chapter 11 cases and further burdening already busy bankruptcy courts. These delays could prevent a company from confirming a reorganization plan and eventually force it abandon reorganization altogether.

"A single claim by any creditor, whether it's valid or not, could stop a company's reorganization dead in its tracks," said Schumer. "Defrauded creditors have plenty of opportunities to pursue their remedies. Putting people's livelihoods in jeopardy isn't the right way."

Schumer's amendment would change Section 708 to only allow domestic governmental units - the federal government, states, and local government bodies - to have their claims excluded on the basis of fraud. Schumer said that the single exception was important since "debtors should not be allowed to impose a burden on taxpayers and the general public through fraud."

Schumer warned that the new law unamended could deliver a crippling blow New York City's economy if the nation's recent economic downturn worsens and more companies are forced into Chapter 11. Instead of reorganizing, Schumer predicted that more of these companies could be forced to liquidate, forcing layoffs and creating major real estate vacancies and lost city tax revenue.

"New York City is the fashion and retail capital of the world," said Schumer. "We need to preserve the protections in our current bankruptcy code so we can keep it that way."

# # #