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National Bankruptcy Conference

2015 Annual Meeting

Washington, D.C. (Sidley & Austin)

October 29-30, 2015

I. Thursday, October 29, 2015

A. Attendance

Members Present: Richard Levin (Chair), Patrick Vance (Vice Chair), Katherine Porter (Secretary), Tom Ambro, Douglas Baird, Michael St. Patrick Baxter, Don Bernstein, Babette Ceccotti, Leif Clark, Dennis Dow, Dennis Dunne, David Epstein, S. Elizabeth Gibson, Daniel Glosband, Allan Gropper, Whitman Holt, Marshall Huebner, Melissa Jacoby, Kenneth Klee, Robert Lawless, Heather Lennox, E. Bruce Leonard, Marc Levinson, Keith Lundin, Ralph Mabey, Robert Martin, Thomas Moers Mayer, Todd Maynes, Troy McKenzie, Herb Minkel, Edward Morrison, Harold S. Novikoff, Isaac Pachulski, Randal Picker, John Rao, John Shaffer, Brendan Shannon, Raymond Shapiro, Thomas Small, Edwin Smith, Gerald Smith, Henry Sommer, James Sprayregen, Ronald Trost, Jane Vris, Eugene Wedoff, Jay Westbrook, and Brady Williamson.

Emeritus Member Present: Bruce Bernstein

Other Persons In Attendance Included: Shari Bedker (Executive Assistant for the Conference), Nan Eitel (Executive Office of the U.S. Trustee), Bridget Healy (Administrative Office of the U.S. Courts), and Susan Jensen (Senior Counsel, House Committee on the Judiciary).

B. Welcome and Announcements

Chair Levin called the 2015 Annual Meeting of the Conference to order at 9:02 a.m. He welcomed the new conferees, Babette Ceccotti, Dennis Dunne, and Dennis Dow.

The Conference began in Executive session.

C. Executive Committee Report

1. Summary of the Executive Committee Meeting

Chair Levin gave a summary of the Executive Committee meeting held on October 28, 2015. He announced that the Executive Committee had voted to admit the four new members of the Conference: Hon. Shelly E. Chapman, Whitman L. Holt, Alan W. Kornberg, and Richard G. Mason. Chair Levin thanked Conferee Levinson and other members of the Membership Committee.

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He also announced that next year’s Annual Meeting will be held on November 10 and 11, 2016. There will not be a mid-year meeting.

The Executive Committee also discussed succession planning for the Chair and Vice Chair. The terms of Chair Levin and Vice Chair Vance expires in 2016. The process will continue in its traditional fashion, with members of the Executive Committee speaking with each of the conferees about succession.

2. Nominating Committee Report

Conferee Gibson gave the report of the Nominating Committee.

The Nominating Committee nominated Conferee Ed Smith to serve as Treasurer, for a one-year term.

The Nominating Committee nominated Conferee Porter to serve as Secretary, also for a one-year term.

The Nomination Committee nominated Conferees Goldstein, Morrison and Rao to serve on the Conference’s Executive Committee, each for a three-year term.

The Conference voted unanimously to accept the nominations.

Chair Levin thanked Conferees Ambro, Baird, and Houser who have completed three-year terms on the Executive Committee for their service to the Conference.

3. Treasurer’s Report

Conferee Smith stated that the bank account balance has consistently been approximately $50,000. He thanked Conferees who have paid their dues or otherwise assisted the conference financially, such as by not seeking reimbursement or making voluntary contributions.

4. Chair’s Summary of Recent Activities

Chair Levin described the conference held in Washington, D.C. in May, 2015, on Rethinking Chapter 11. He described the uniform praise that the event received and noted that the Committee to Rethink Chapter 11’s written reports also were well regarded. He described the heightened visibility of the Conference as a result of the event.

For the next year, he stated that the Committee Chairs will be engaged in discussion with the Chair and Vice Chair to identify and develop projects for the upcoming year. The Executive Committee is considering whether the Conference should develop and publish position papers on issues that are pending before the courts or otherwise areas of controversy that are not yet legislative matters.

Chair Levin encouraged conferees to visit the Conference’s website, which has recently been reorganized.

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He noted two items on the agenda: a lunchtime talk by Conferee Mayer on Puerto Rico’s debt issues, and a group photo to follow the adjournment of today’s meeting.

5. Resolution Honoring Harvey Miller

Chair Levin noted that the Conference had passed a resolution honoring Harvey Miller several months ago, near the time of his passing.

6. Resolution Honoring Joe Lee

Vice Chair Vance read the following resolution to the Conference:

Whereas:

Joe Lee.

A short name. And long resume.

The Honorable Joe Lee doubles the word count. He was one of our own. A longtime member of the National Bankruptcy Conference. He served as the chair of the Committee for Individual Debtors for a decade and a half in the 80s and 90s.

Judge Lee brought to our Conference a point of view about the so-called “little-man” that appeared daily in his court in the Eastern District of Kentucky. He served on that court from his appointment in 1961 to his passing earlier this year.

Joe knew the struggling people who appeared in his court. His compassion and empathy for humanity shaped his view of what the bankruptcy process should and could do. He believed in the essential honesty and pride of those debtors who streamed before him during his 45 plus years on the bench. He bravely spoke out against the barriers of entry imposed by the lobbyists for the banking and credit card industries.

When Judge Lee was “called out” by a professor in a 1999 article in a Federalist Society publication as a representative of the mindset that issuers of credit bear a large portion of the blame for escalating bankruptcy filing rates, he probably proudly wore that as a badge of honor. Joe certainty believed what he was seeing in his courtroom over the decades. He surely scoffed at the professor’s conclusion that the decline of shame and stigma and overly generous legal system were the causes of rising consumer cases.

There is no question where Joe’s big heart and head were when he testified a dozen or so times before Congress, wrote 40 plus article and taught bankruptcy at the University of Kentucky for 20 years.

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Although his name is short – just 2 syllables – Joe’s list of accomplishments are long. He contributed much to the intellectual life of bankruptcy, serving as Editor-in-Chief for 8 years of the distinguished American Bankruptcy Law Journal.

Everyone that Joe came in contact with, it seems, honored him: The National Conference of Bankruptcy Judges which he served as its President, the Commercial Law League awarded him its Larry P. King Award-another one of our own whose memory we hold dear- , the very first recipient of the Norton Judicial Excellence Award, his beloved University of Kentucky, the State and local bars of Kentucky, ALI-ABI, and the Distinguished Service Award of the American College of Bankruptcy.

So it is more than fitting that the National Bankruptcy Conference at its annual meeting in Washington, D.C. this 29th day of October, 2015, remembers Joe Lee as a giant among men. We fondly recall his many valuable contributions to our Conference and in so doing express our sincerest condolences to his widow, Carole Pace Lee and his 4 daughters, Caroline, Caitlin, Annabel, Janet and their families.

The Resolution was adopted by a unanimous vote.

Conferee Trost expressed his memories of Conferee Lee’s work on legislative reform. He was instrumental in having the Conference and the National Conference of Bankruptcy Judges submit a joint comment letter to Congress during the debate leading up to the enactment of the Bankruptcy Code.

D. End of Executive Session

Chair Levin reviewed the agenda for the remainder of the Annual Meeting. He encouraged all Conferees, regardless of expertise, to participate actively and contribute in this Annual Meeting.

The Conference’s executive session ended, and the Chair invited the Conference’s guests into the meeting.

E. Legislation Committee Report

Conferee Baxter gave the Legislation Committee’s report. He described the general work of the Committee, which is to respond to requests from Congress. Some requests are for substantive review and others are non-substantive, in which case the review is limited to drafting issues. Some requests may be made public, but many are confidential. The responses typically take three forms: a Conference position, a Committee position, or informal comments. A conference position requires either polling of all conferees or Executive Committee action. A Committee position results in a considered memorandum from the responsible committee. Informal comment is neither a Conference position nor a Committee Position, but reflects the considered views of the conferees consulted. He

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thanked several committees and conferees for their work this year in providing timely responses.

He highlighted the following six items, the first five of which are described in the written report of the Legislative Committee.

1. Legislation to address resolution of Systemically Important Financial Institutions (SIFIs) (S. 1861 and H.R. 5421)

The House and Senate each have a bill that would amend the Bankruptcy Code to address the resolution of SIFIs. The Conference submitted extensive comments on both the Senate and House bills, and Chair Levin testified on behalf of the Conference at a hearing of the Senate Subcommittee on Regulatory Reform, Commercial, and Antitrust Law. The Capital Markets Committee will report additional information on developments in this area.

2. Proposed amendments to Chapter 15 and Section 365(n)—Innovation Act (H.R. 9)

Last year, the Conference performed a substantive review of certain provisions of the proposed Innovation Act, a patent-reform bill intended to address the problems created by so-called “patent trolls.” The bill proposed to amend certain provisions of the Bankruptcy Code:

i. To include trademarks, service marks, and trade names in the definition of “intellectual property” in Bankruptcy Code section 101(35A), so as to make Bankruptcy Code section 365(n) applicable to licensees of such intellectual property;

ii. To apply section 365(n) to all chapter 15 cases; and iii. In the case of trademarks, service marks, and trade names, to require

the trustee to monitor and control the quality of a licensed product or service.

The bill was passed by the House as H.R. 3309 but subsequently was abandoned in the Senate. The House bill was reintroduced this year as H.R. 9. While the reintroduced version was substantially identical to the prior version, it included language that attempted to address at least one of the concerns raised by the Conference -- regarding the requirement that the trustee monitor and control the quality of a licensed product or service, after rejection.

This year, we provided a nonsubstantive review of proposed statutory language in H.R. 9 to amend sections 1522 and 365(n) of the Code. The request was referred to the Drafting Committee, which provided comments. See Appendix 2 of the Legislation Committee Report for the comments of the Drafting Committee.

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3. Proposal for a Technical Correction to the Hanging Paragraph of Section 523(a)

After consideration, the ABA section on Taxation has proposed a technical correction to the hanging paragraph of section 523(a). The paragraph, added to the Bankruptcy Code by BAPCPA, has created confusion about whether late-filed returns are eligible for discharge. The Individual Debtor Committee will report on this issue at the Annual Meeting, including describing its assistance to the ABA Section on Taxation.

4. Proposed Amendment to Chapter 9 to Make Puerto Rico Municipalities Eligible for Chapter 9 Bankruptcy (S. 1774; H.R. 870)

Last year, the Committee reported that the Conference’s view was sought regarding the issues raised by a proposed bill that would make Puerto Rico municipalities eligible for chapter 9. The proposed bill would amend section 101(52) of the Bankruptcy Code to make a Puerto Rico municipality eligible for chapter 9. The Executive Committee submitted a letter that the Conference believes that that the language of the proposed bill would achieve its intended purpose to permit Puerto Rico to authorize its municipalities to use chapter 9, subject to the eligibility and other requirements currently imposed by the Bankruptcy Code on the States. The proposed amendment was introduced in the House last year, but the congressional session ended without action on the bill.

The bill was reintroduced this year in the House as H.R. 870 (see Appendix 3 of Legislation Committee Report). A virtually identical bill was also introduced in the Senate (see S. 1774 in Appendix 4 of Legislation Committee Report). Both bills are pending.

5. Achieving a Better Life Experience Act (ABLE) (H.R. 647)

The Conference was asked to draft statutory language to give so-called ABLE accounts the same treatment in bankruptcy as 529 and Coverdell accounts. The Individual Debtor Committee will report on this matter.

6. Keep Our Pension Promises Act (H.R. 2844)

Last week, the Conference provided informal comments on a substantive review of Section 5 of H.R. 2844, which proposes to grant a superpriority administrative claim to unfunded pension claims. We referred the matter to the Business Debtor Committee, with assistance from Conferee Ceccotti.

A majority of those Conferees consulted opposed the proposal on the basis that it would be an undue burden on the reorganization process. Nevertheless, in an effort to be constructive, the Conferees provided suggestions on alternatives that

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might accomplish the same goal, but with perhaps less violence to the Code. Some drafting comments we also offered.

Chair Levin thanked Conferee Baxter for his excellent work in maintaining and developing relationships with members of Congress and their staffs.

F. Capital Markets Committee Report

Conferee Vris noted two main areas of work: systemically important financial institutions (SIFIs) and safe harbors for qualified financial contracts.

The Committee continued its work on monitoring and responding to proposed legislation for the resolution of SIFIs through a bankruptcy process. There was no action the Committee requested of the Conference at this time. She noted that the most recent proposed legislation reflects a number of the suggestions previously made by the Conference and noted that the votes by the Conference at the last annual meeting proved instrumental in forming responses to the legislative initiatives. While the single point of entry approach has gained wide acceptance as a way to facilitate a rapid transfer of equity in the subsidiaries out of the estate and into a bridge company, a number of other issues with regard to the resolution of SIFIs remain unsettled.

With regard to qualified financial contracts, there are two topics the Committee looked at and needed guidance on: the scope of the safe harbor from avoidance actions for transfers under 546(e), which is broadly applied to protect LBO transfers, and the safe harbor for contracts for the physical delivery of commodities for use by an end-user. The 546(e) topic has two parts to it: First, whether the safe harbor should survive even after the bankruptcy case has concluded. Neither the subcommittee nor the committee could reach consensus on this matter. And second, whether the safe harbor should protect transfers to all public security holders, as proposed by the ABI Commission. With respect to contracts for physical delivery, the Committee re-examined how the special exemptions under the Bankruptcy Code should be amended to exclude contracts that fit in the safe harbor definition but ultimately require physical delivery of goods and that are functionally supply contracts (rather than financial hedges) from the safe harbor treatment. The Conference had previously voted to significantly narrow the safe harbor. Conferee Vris noted that the Conference, through a working group of the Committee and the Executive Committee, had been working with the ABI Commission to reach consensus on changes to the safe harbors to present to Congress, and it was not clear the dialogue could continue with the ABI Commission now that its report had been delivered.

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1. Systemically Important Financial Institutions (SIFIs)

Conferee Bernstein reviewed some key principles of the Dodd-Frank framework. He noted that G-SIFIs are covered by Title I, whereas regular SIFIs are covered by Title II. He explained why it was important that despite the Dodd-Frank framework that there be a functional bankruptcy law for SIFIs and affiliates. Today, regulators require approximately two to two and a half times the amount of capital that they required in 2008, and also are poised to require a layer of loss-absorbing debt on financial institutions’ balance sheets. Regulators also require banks to have 100% of short-term liabilities in liquid assets. As a result of these new capital requirements, the entire structure of banks is changing. Many of the living wills have adopted a single point of entry approach in their living wills and as a result of the capital structure are well suited to have initial funding in the event of a resolution.

The two bills (Senate and House) to address the resolution of a SIFI are very similar to each other. The main difference is that the House bill would repeal Title II of Dodd-Frank but the Senate bill would leave it in place as law. Neither bill creates any access to liquidity; the only access to liquidity would stem from Title II of Dodd-Frank.

In consulting with Congress on the SIFI bills, the Committee has made five main points:

i. The Bankruptcy Code is not as desirable as a specialized scheme for addressing a systemic crisis. Therefore, the Conference opposes the repeal of Title II of Dodd-Frank.

ii. Regulators should be afforded a particularly important role in the resolution proceedings. Regulators should be able to appoint a trustee if the entity files for bankruptcy and should have a very close supervisory role in the resolution.

iii. There should be no right on behalf of regulators to file an involuntary petition. Part of the concern was that the proposed 18-hour window for the judge to act in the SIFI resolution in bankruptcy was too constrained, making it far superior for regulators to use Title II of Dodd-Frank if they feel that action is needed. Both bills have now removed the ability to file involuntary petitions.

iv. Liquidity is of central importance in these situations. The Conference opposes any effort to strip the law of any liquidity that is government funding (which the Senate bill previously had.) The House bill now says that government money should not be used to pay creditors but can be used to meet liquidity needs.

v. The judge for a SIFI bankruptcy case should not be a district judge but should rather be a bankruptcy judge. There is a provision in the

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House bill that would create a panel of ten bankruptcy judges who would be designated as available for assignment to such cases.

These points, among others, are made in the June 18, 2015, letter of the Conference to members of Congress regarding the proposed amendments to the Bankruptcy Code to facilitate the resolution of systemically important financial institutions.

Conferee Westbrook noted that an undesirable effect of the living will and capital requirements is that more money may be moving to shadow banking entities that are not subject to the legal requirements of Dodd-Frank. Conferee Vris added that some large institutions are divesting or becoming smaller to avoid designation as a SIFI. Conferee Klee offered the observation that some members of Congress are wary of administrative procedures and appreciate the due process of a judicial system. Conferee Westbrook pointed to the need for the U.S. system to be comprehensible to other countries. Conferee Bernstein noted that the U.S. is the only country in which it is even possible that a judicial approach could be used.

Conferees Pachulski and Bernstein discussed whether amendments to the safe harbor provision to address cross-defaults would be a more elegant solution than designing a separate chapter of the Bankruptcy Code for SIFIs. Conferee Novikoff expressed concern that regulators other than the FDIC may not be willing to step up and engage in SIFI proceedings. In response to a question from Conferee Baird, Conferee Bernstein noted that the main benefit of the bill is to provide more security to judges about the expedited pace for hearings and decisions.

Several Conferees suggested separating out the point of entry issue (the transfer of assets to a bridge company) from the development and enactment of a resolution plan. They suggested that the launch of a single point of entry may be more appropriate for a regulator given their ability to work with speed and outside the judicial system, but that review of the resolution plan should be left to the judicial system.

2. Survival of Safe Harbor for Qualified Financial Contracts after Confirmation

Conferees Klee and Smith addressed the conference on whether the safe harbor protection of payouts from settlement agreements from avoidance should continue after the bankruptcy case is resolved. Conferee Klee said that four of five members of the working group of the Committee agreed that there is no basis to eliminate a state-created creditor cause of action. If the trustee does not bring the cause of action, then it is abandoned back to the creditor and who may bring it after the case is over and the stay is lifted. Conferee Klee expressed the opinion that the safe harbor is merely a limit on bringing an action; it does not destroy a property right (the cause of action). He added that if states wanted to amend their

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avoidance laws to continue the safe harbor protections, he would find that it appropriate as these are state-created rights. He believes that there is no basis for arguing federal preemption of these causes of action.

Conferee Ed Smith described the view that the safe harbor protections should continue after bankruptcy. He believes that if Congress felt that finality in the marketplace and prevention of systemic risk was so important that state law fraudulent transfer claims should not be available for securities contracts settlements, that there should be such an easy way around the protection of simply bringing the avoidance action after bankruptcy. Such an approach would undermine the policy of protecting the marketplace. He also noted that in a state law action that the recovery would go only to the creditor who was able to bring the action, rather than for the benefit of all creditors if the action was brought in bankruptcy. This would be a perverse result in the context of a bankruptcy. He noted that he thinks many who oppose section 546(e) itself may view the ability to bring state law actions as a way to weaken the overbreadth and application of 546(e).

The Conference debated the two positions. Conferee Huebner stated that he believed that avoidance actions generally (not just the safe harbor protections) do not survive the bankruptcy. He thinks that it would gut the Congressional scheme to allow a creditor to bring an action that the bankruptcy trustee could not, merely by nature of a lawsuit being brought later. Conferee Pachulski identified the issue of whether the ability to bring an action after bankruptcy would force a settlement of the transfer—despite the safe harbor prohibiting the trustee from bringing such an avoidance action.

Conferee Sommer noted that Congress has shown through its treatment of charitable contributions that it can intend to eliminate the right to bring state law avoidance actions after bankruptcy. Conferee Bernstein stated that he is troubled by the idea that someone could use a weak claim to create leverage in the bankruptcy by threatening to bring a postbankruptcy avoidance action. Conferee Klee responded that the claim may be very strong for the creditors but that it cannot be brought in bankruptcy and so that it is appropriate to allow the creditors to recover at state law. Conferee Morrison expressed that he thought the debate boiled down to whether there should be preemption of state law read into the federal legislation on safe harbors. He stated that he believed Congress intended provide complete protection to these settlement transfers but failed to draft a preemption clause because it was focused on bankruptcy, which is where these avoidance issues most frequently arise. Conferee Vris said that she did not believe that Congress succeeded in preempting state law but that such a situation will lead to an unfortunate dynamic.

Chair Levin described the multiple issues raised by this debate. He stated that the Conference should not be voting to interpret the statute but rather on what the

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policy should be. He proffered the idea that the Conference develop and issue a position paper on this issue, not concluding that preemption does or does not exist, but rather illuminating. At Chair Levin’s suggestion, the vote was deferred to after the discussion of scaling back the breadth of the safe harbors with regard to certain fraudulent transfer actions.

3. Narrowing of Safe Harbor Provisions with Regard to Fraudulent Transfer Actions against Investors

Conferee Pachulski described the breadth of the safe harbor provisions, which have been construed to protect the beneficial holder of a security in connection with a leveraged buyout who received a settlement payment under section 546. The Conference has previously concluded that a former shareholder who received the payment in the leveraged buyout should be subject to recovery actions under section 550, notwithstanding the safe harbor. It has supported the amendments to sections 546 and 550 to repeal the protection of the safe harbor to such beneficial holders.

Conferee Pachulski described the narrower exception to the application of the safe harbor recommended by the ABI Commission on the Reform of Chapter 11. Its proposed reform would draw a distinction between public and private shareholders. In light of the ABI report, the Committee revisited this issue to consider whether public and private shareholders should be treated differently. The Committed noted that in public companies there are many small shareholders who may hold shares in retirement accounts or the like and that these shareholders are likely geographically distant from the bankruptcy court in which the case is filed and otherwise are ill equipped to respond to a fraudulent transfer complaint. The Committee felt there should be some limitation to protect small shareholders, although it noted that there are cost-benefit concerns that may practically limit an action to recover from small shareholders. Rather than drawing a distinction between public and private securities, the Committee believes that a limitation based on the aggregate value of the property to be affected by recovery of the transfer is more appropriate. Conferee Mayer asked whether the Committee had considered using the “accredited investor” definition from securities law as a distinction to decide who should enjoy protection from recovery under the safe harbor. Conferee Huebner expressed support for limiting recovery to situations where the transferee received $100,000 or less. He noted that a dollar limit approach based on the size of the transfer is already present in preference law under the Bankruptcy Code. Chair Levin stated that he preferred the public/private distinction, in part because the index funds are automatically part of these transactions and it will be disruptive for them to have to participate in fraudulent transfer litigation. The Conference debated the competing concerns and then voted on the issue.

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In fraudulent transfer actions brought to recover a transfer pursuant to a leveraged buyout, there should be a safe harbor to protect transferees who are public shareholders, except those who are insiders or shareholders who participated in the transaction.

The vote was split, with 22 Conferees voting in favor of such a change and 16 opposing the proposition.

The Conference then considered an alternative approach, as recommended by the Committee, of applying a minimum threshold transfer amount to protect smaller shareholders.

In fraudulent transfer actions brought to recover a transfer pursuant to a leveraged buyout, there should be a safe harbor to protect transferees who are public shareholders, except those who are insiders or shareholders who received transfers with an aggregate value of more than $100,000.

Upon a vote, the Conference was substantially in favor of this approach.

The Conference returned to the issue discussed above in part 1. It voted on whether as a matter of policy, the law should prevent a creditor from bringing an avoidance action after bankruptcy that could not have been brought in bankruptcy due to the safe harbor protection.

The vote was split, with 22 Conferees voting support and 18 voting in opposition.

The Conference then revisited the issue, described above, as to whether the safe harbor protection from recovery should continue to apply after bankruptcy to protect recipients of a transfer of less than $100,000 as a result of a leveraged buyout. It voted again in light of the majority vote that protection from avoidance actions based on the safe harbor should continue after bankruptcy.

A substantial majority of the Conference voted in favor. Four Conferees were opposed.

4. Exclusion of Supply Contracts from Safe Harbor

Conferee Morrison described how the safe harbors for financial contracts are broad enough to sweep in forward and commodity contracts that are not pure financial hedges are actually ordinary supply agreements, in which delivery of the good is made. This overbreadth problem of the safe harbors is widely acknowledged. In 2010, the Conference described the issue in a letter to members of Congress and recommend amendments to narrow the safe harbor.

There are three paths forward: 1) the previous approach of the Conference; 2) an approach developed with the working group of the Committee in collaboration with the ABI Commission working group; and 3) a new approach being presented

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today to the Conference (Option B). The Committee favors the new approach but seeks guidance from the Conference.

The 2010 Conference approach would have amended the Code to allow the debtor a period of 48 hours to announce an intention to assume or reject all contracts with each single counterparty. If the debtor made that statement, it would have 30 days to make a final decision and would have to post cash collateral to protect the counterparty. If the debtor assumes all contracts, the treatment would be standard under the Code. If all contracts were rejected, the safe harbor protection would kick in and benefit the counterparty.

The Conference’s preferred approach (Option B) is to say that the safe harbors do not apply to contracts that have three characteristics: 1) physical delivery is required; 2) the contract is traded off-exchange; and 3) one of the counter parties to the contract is a non-financial entity.

The first requirement reflects that our concern is about supply contracts, not financial hedges. The second requirement would protect the financial markets from instability. The third requirement is to ensure that financial institutions remain subject to the safe harbor as they rarely (if ever) have large exposure to non-financial counterparties.

Several members of the ABI Subcommittee on Derivatives and the Conference’s Capital Markets Committee met and developed the following proposal. A contract would be excepted from the safe harbor if it met three characteristics: 1) physical delivery is required by the contract; 2) a good used in the ordinary course of one of the counterparties’ business; and 3) neither counterparty is a financial entity. Conferee Morrison noted neither counterparty being a financial entity will also limit it to off-exchange transactions, just as the Conferee’s proposal would.

The Conference debated these proposals. Conferee Morrison explained that it would be easy to ensure that safe harbor protection continued under the Conference’s current proposal simply by purchasing the contract on exchange.

Conferee Novikoff offered a hypothetical that illustrated the potential for gaming under the Conference’s alternate proposal. Conferee Huebner expressed concern that the 30 days in the 2010 Conference’s prior proposal may not actually be a sufficient period for the debtor company to evaluate whether it has the capacity and means to accept or make physical delivery in light of its restructuring.

Conferee Vris proposed that the Conference’s proposal be amended to specify that the debtor must not be a financial entity. This would eliminate the harm that the debtor could suffer if the safe harbor applied to buy/sell contracts for physical commodities and the counterparty could act immediately.

Chair Levin noted that wholesalers are often parties to these contracts. Conferee Morrison explained that the Conference’s new proposal would protect

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wholesalers, assuming the drafting was such that it did not require the non-financial entity to “use or produce” the good (thus covering wholesalers in their role as intermediary).

The Conference voted unanimously in favor of approving “Option B” to addressing the issue of supply contracts and the safe harbor. This is the Conference’s preference but the Conference also conveyed its flexibility to the Committee to offer its previously approved 2010 approach in response to legislative developments.

G. International Aspects Committee Report

Conferee Leonard introduced the international aspects committee’s work. He stated that there were three issues for the Conference’s consideration and an update on some developments in international insolvency.

1. Applicability of Section 109(a) to Chapter 15

Conferees Glosband and Westbrook described the decision in In re Katherine Elizabeth Barnet (Drawbridge Special Opportunities Fund, LP v. Katherine Elizabeth Barnet, Foreign Representative, 737 F.3d 238 (2d Cir. 2013) which held that section 109(a) applied to a petition for recognition of a foreign proceeding. Since the decision, the section 109(a) requirement has been regularly satisfied by the transfer of a small amount of property to the United States, often in the form of funded retainer accounts, as a precedent to the filing of a chapter 15 case. The Committee believes the ruling is incorrect. Conferee Westbrook noted that there is no debtor in a recognition proceeding, making it inapt, to put it mildly, to apply the debtor eligibility statute. Conferee Klee asked what showing of eligibility is required for a recognition proceeding. The response was that eligibility was not required nor an issue because recognition alone did not entitle the debtor to litigate in the U.S. courts, but an initial step to taking any substantive action. The required nexus with the United States for a recognition proceeding is that there is some need for assistance from a court in the U.S. to effectuate the foreign case. There does not need to be a res in the United States. Chair Levin compared recognition to an order of appointment that simply identified the correct party to take action but did not entitle the party to any particular action.

The Committee proposes overruling Barnet by adding limiting language to section 109 to clarify that it only applies to chapters 7, 9, 11, 12, or 13.

The Conference voted in favor of clarifying that section 109 does not apply in chapter 15 cases, with a sole vote in dissent.

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2. Applicability of Section 103(a) to Chapter 15

In the wake of Barnet, the Committee recommends that additional language be added to section of 103 of the Bankruptcy Code to clarify what additional statutes may be applied in a chapter 15 case. Chapter 15 of the Code already makes reference to provisions other than those specified as applicable to chapter 15 in section 103 such that this language is merely clarifying to avoid the type of interpretation reached in Barnet.

The Conference voted unanimously in favor of amending section 103(a) to add sections 305 and 306 to those listed as applying in a chapter 15 case.

The Committee addressed alternative suggestions for how, to a limited extent, amend the Code to address sections other than 305 and 306 that also apply to chapter 15.

The Conference voted unanimously in favor of such changes, subject to the recommendations of the Drafting Committee on amendment language.

3. Clarify the Time of Determination of a Debtor’s Center of Main Interest (COMI)

Conferees Gropper and Clark explained that section 1502(4) defines a “foreign main proceeding” using the present tense of the verb, “where the debtor has the center of its main interests.” In a plain meaning analysis, would one look at the opening of the foreign case or at the moment of recognition of the foreign case. A number of cases have held that because the statute uses the present tense that the key date is when the U.S. court recognized the foreign proceeding. Conferee Gropper stated that Lavie v. Ran, 607 F.3d 1017 (5th Cir. 2010), illustrates the concern with the timing in determining the COMI where there may be a long delay between the opening of the main proceeding and recognition of a foreign proceeding, and during that time a debtor changes his COMI. Conferee Gropper explained that part of the confusion comes from failing to accept the “principal place of business” as the proper interpretation of COMI but rather to understand it as something akin to “where is the activity” at the time of recognition.

The Committee’s recommendation is to amend several sections of chapter 15 to use the past tense of the verb. This will clarify that the date for the determination of COMI is the commencement of the foreign main proceeding.

The Conference voted unanimously voted in support of the amendments.

4. Update on UNCITRAL and Recent Cases

Conferees Gropper discussed decisions from English courts related to the recognition of insolvency judgments. He pointed to the wide variety of approaches to recognition of judgments, particularly default judgments. Conferee

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Gropper noted that the UNCITRAL also is studying corporate groups in insolvency. He explained that the Model Law follows the European Union’s rule on the insolvency of enterprise groups in which there would be a central proceeding for the group, and then multiple proceedings in other jurisdictions. Many of these concepts are being resisted by civil law jurisdictions but a nascent consensus seems to be emerging at the international level. Conferee Clark described the deep resistance from European Union countries to the idea of a “group COMI” by the working group on the Model Law, in large part because of a fear that nearly all large proceedings would then have main proceedings in London or New York.

H. Individual Debtor Committee Report

Conferee Rao stated that there were two informational items and two items on which the Committee requested action from the Conference, and that he would describe the informational issues first.

1. ABLE Account Legislation

The Individual Debtor Committee collaborated with the Taxation Committee and Drafting Committee to respond to a request from the House Judiciary Committee to draft a provision of the “Achieving a Better Life Experience Act of 2014” (ABLE) dealing with the bankruptcy treatment of ABLE accounts that could be created for the benefit of disabled persons. The Committees submitted language to do three things: 1) protect from recovery funds placed in an ABLE account in the two years prior to the bankruptcy petition (paralleling the treatment of 529 educational accounts; 2) clarifying that subject to certain limitations that the debtor’s contributions to ABLE accounts should not have an adverse impact on evaluating presumed abuse under section 707(b); and 3) requiring the filing of a record of the debtor’s interest in an ABLE account under section 521(c). This language was incorporated into the bill, which was signed by the President as law on December 19, 2014.

2. Discharge of Tax Debts

Conferee Rao described the work of the Committee in preparing a recommendation on the ABA’s Section on Taxation proposal for a technical correction to the hanging paragraph of section 523(a). BAPCPA added a definition of tax return to section 523(a), and in response, several courts have held that a tax debt that is otherwise dischargeable under section 523(a)(1)(B)(ii) is not dischargeable if the debtor’s tax return was not timely filed. The IRS has not asserted that BAPCPA expanded the nondischargeability by adding a definition of tax return but several state taxing authorities would take that position. The Committee believes that such an interpretation was not intended by Congress. It drafted a letter that the Conference sent to the House Judiciary Committee that

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supported the ABA proposal and suggested several additional technical corrections. No legislation is pending at this time.

3. Student Loan Treatment in Chapter 13

In recent years’ annual meetings, the Conference approved several proposals from the Individual Debtor Committee related to the dischargeability of student loans. These approved proposals include: changing the “undue hardship” standard to “hardship,” permitting loans in existing more than five years to be discharged without meeting the dischargeability standard of §523(a)(8), narrowing the nondischargeability provisions so that they would only apply to government-issued or government-insured loans, and expanding the discharge to include Parent Plus or similar loans when the debtor’s status as a student has terminated for any reason.

At last year’s meeting, the Conference discussed treatment of student loans in chapter 13. Some debtors, particularly those who file for reasons other than student loan problems, would like to continue to pay their student loans in the ordinary amounts and regular course by separately classifying student loan debt under the plan. Some courts have said that this “cure and maintain treatment” under §1322(d)(5) would constitute unfair treatment under §1322(d)(1). In 2005, Congress amended the Code to prohibit the payment of interest on unsecured debts unless the plan is making 100 percent repayment. Student loan debtors who are making regular repayments may be tripped up by the prohibition in §1322(b)(10) because the normal payments on their loans include interest. Last year, the Conference voted unanimously in favor of amending §1322(b)(5) to add “notwithstanding paragraph (1), (2), and (10)” to §1322(b)(5), with the proviso that the Drafting and Individual Debtor Committees consider whether additional language is necessary to limit this amendment to educational and student loans as intended.

After debate and consideration this year, the Committee proposes two alternatives for the Conference to consider in implementing its support for excepting student loans from the “cure and maintain” provisions of section 1322(b)(5) and the required interest payments of section 1322(b)(10). The Committee identified a concern with such a change is that by singling out student loan debt, any change would create a negative implication for other unsecured long-term claims that such claims are definitely subject to the unfair classification test. Conferee Rao described two alternatives for proposed latter. He noted that the latter one is farther reaching because it goes beyond student loans to clarify that co-signed debts also should not be subject to the unfair discrimination test and not require the payment of interest.

Conferee Sommer presented the view in favor of the second alternative that would excuse any co-signed claims, as well as student loan claims subject to section

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523(a)(8), from the unfair discrimination test and from the requirement of paying postpetition interest. Conferee Lundin observed that the second alternative proposal would permit the debtor to treat student loans and co-signed debt more favorably than other unsecured debt and that would conflict with longstanding bankruptcy policy about equality among similar debts. Several conferees asked whether a better approach was simply to make student loans dischargeable in chapter 13 or in all chapters, rather than expanding options to pay the debts in chapter plans. Conferee Wedoff noted that the best interests test remains, even if the unfair discrimination provision was eliminated, to protect the unsecured creditors’ recovery in chapter 13. Conferee Clark expressed support for making all student loans dischargeable in chapter 13.

In light of the comments, Conferee Rao asked if the Conference supported making student loans dischargeable, without limitation, upon the completion of a chapter 13 plan. Conferee Jacoby expressed concern about bifurcating the dischargeability of student loans by chapter, given certain research identifying concerns with the operation of chapter 13. Conferee Lawless noted the prevalence of zero-payment chapter 13 cases and suggested that student loan creditors would likely be the only unsecured creditors getting paid in these cases. The Conference then voted on these issues.

Should section 1322(b)(1) be amended to permit the separate classification and treatment without regard to unfair discrimination and section 1322(b)(10) be amended to permit debtors to pay the interest?

The Conference voted overwhelmingly in favor of the proposal. Three conferees were opposed.

Should all student loans can be discharged in any chapter of bankruptcy?

The vast majority of Conferees supported the proposal. Five Conferees were opposed.

Notwithstanding its prior vote that student loans should be discharged in any chapter of bankruptcy, if that is not enacted, does the Conference support making student loans dischargeable solely in chapters 11, 12, or 13?

Four Conferees supported this proposal, with the remainder opposed.

4. National Chapter 13 plan model form

Conferee Rao described how in the last few years the Bankruptcy Rules Committee has been developing a national model form for a chapter 13 plan. He explained that the way in which plans function in chapter 13 cases creates substantially different options and process in various districts based on form plan language. He offered as an example that while the law is consistent that a wholly underwater lien on a residential property may be stripped off, the procedures vary.

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Some courts permit it to be achieved via the chapter 13 plan, whereas others require a motion to value or an adversary proceeding. A national model plan form has been controversial. Generally, there was the support for more uniformity but many practitioners and judges wanted the national form to mimic the form in their jurisdictions. Several commenters, including Conferee Porter, strongly supported a uniform national form but over one hundred judges submitted a joint comment in opposition to the model form. In response to the controversy, the Bankruptcy Rules Committee is not going to support the national model form as a Director’s form.

Conferee Dow described the compromise to a mandatory model form that was advanced and supported by a number of judges. Under the compromise approach, each district would be allowed to adopt its own local plan form that would be used through the district or to adopt the national plan form. The Bankruptcy Rules Committee is collecting feedback on whether the Rules Committee should adopt a rule that embodies the compromise or abandon the project. Conferee Rao explained why he does not support the compromise, despite his belief that a uniform national form would be desirable. He identified three specific goals that the Rules Committee had initially. First, it was to promote uniformity. Second, it was to create efficiencies. Third, it was to ensure that debtors were permitted to propose chapter 13 plans that were consistent with the law. He fears that most courts will not adopt the national model plan form and that the requirements are de minimis such as numbering things in a particular order. He also noted that a local plan form may effectively eliminate options that should be legally available under the national form.

Conferee Wedoff described the many contributions of Conferee Rao to the national plan form. He then explained to the Conference why he supports the compromise approach of requiring a district either to adopt the national model plan or a district-wide local plan as preferable to the status quo. He noted that while he favors a national model plan, he does not believe that it can succeed at this time and that the compromise is a move in the correct direction toward the identified goals of uniformity, efficiency, and the preservation of legal options for debtors.

Conferee Gerald Smith spoke in favor of requiring a national form for a chapter 13 plan as consistent with sound bankruptcy principles. Conferees involved in the rulemaking process reiterated that the national form would not advance and that the remaining issue was whether the compromise was desirable as an alternative. Several Conferees discussed how courts were likely to respond to the compromise alternatives of either adopting the national model form or having to create a model form for their districts, and there was some disagreement about the likely outcomes under the compromise.

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As a matter of principle, does the Conference favor a uniform national form for chapter 13 plan? The Conference was unanimous in support of a uniform national form.

If the Rules Committee does not adopt a uniform national chapter 13 form, does the Conference favor the adoption of the compromise that is currently being considered by the Rules Committee? Thirty Conferees favored the compromise as preferable to the status quo. Six Conferees were opposed to support of the compromise.

I. Adjournment

The October 29 session of the 2015 Annual Meeting adjourned at approximately 4:15 p.m.

II. Friday, October 30, 2015

A. Attendance

Members Present: Richard Levin (Chair), Patrick Vance (Vice Chair), Katherine Porter (Secretary), Douglas Baird, Michael St. Patrick Baxter, Don Bernstein, Babette Ceccotti, Leif Clark, Dennis Dow, Dennis Dunne, S. Elizabeth Gibson, Daniel Glosband, Marcia Goldstein, Allan Gropper, Whitman Holt, Marshall Huebner, Kenneth Klee, Heather Lennox, Marc Levinson, Keith Lundin, Ralph Mabey, Robert Martin, Thomas Moers Mayer, Troy McKenzie, Herbert Minkel, Edward Morrison, Harold S. Novikoff, Isaac Pachulski, Randal Picker, John Rao, John Shaffer, Raymond Shapiro, Edwin Smith, Gerald Smith, Henry Sommer, James Sprayregen, J. Ronald Trost, Jane Vris, Eugene Wedoff, Jay Westbrook, and Brady Williamson.

Other Persons In Attendance Included: Shari Bedker (Executive Assistant for the Conference), Nan Eitel (Executive Office of the U.S. Trustee)

B. Welcome

The October 30 session of the 2015 Annual Meeting began at 9:04 a.m.

C. Business Debtor Committee Report

On behalf of the Business Debtor Committee, Conferee Shaffer listed the three issues for presentation to the Conference.

1. Restructuring Bonds in Bankruptcy

Conferees Shaffer and Pachulski reported on the Business Debtor Committee’s proposal for a new chapter of the Bankruptcy Code for the restructuring of bonds and other obligations for borrowed money. The new chapter would in many

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respects be a streamlined version of chapter 11, with the effects of a bankruptcy limited (with narrow exceptions) to the holders of claims for borrowed money that are being restructured in the case.

As context, a driver for the proposal is section 316(b) of the Trust Indenture Act, which provides that the right of any holder of any indenture security to receive payment or to institute suit for enforcement of payment “shall not be impaired or affected without the consent of such holder.” The effect of this provision is to require unanimous consent to restructure payment terms under indentures outside of bankruptcy. Moreover, even U.S. loan agreements that are not subject to the Trust Indenture Act generally include such unanimous consent requirements. Under such agreements, there is no non-bankruptcy way to bind holdouts, regardless of their reason for holding out, and thus holdouts may force a borrower to file for chapter 11. Given the large and fluid debt trading market, the unanimity requirement of the Trust Indenture Act, and similar provisions in credit agreements, are an increasing problem in trying to accomplish out-of-court restructurings.

The Committee to Rethink Chapter 11 prepared, and the Conference approved at the 2014 Annual Meeting, a proposal for a new chapter of the Bankruptcy Code dedicated to restructuring of bonds and other obligations for borrowed money. The new chapter would provide a streamlined, judicial procedure for restructuring indentures governed by the Trust Indenture Act and other obligations that by contract require unanimous or high super majority consent, which could not be obtained in an out-of-court restructuring. An alternative considered and rejected was to support amending the Trust Indenture Act.

The Conference’s proposal for a new chapter dedicated to restructuring debts for borrowed money was presented at the Conference’s May 2015 Washington D.C. conference on Rethinking Chapter 11; it was well-received.

Also, in the months following the 2014 Annual Meeting, several reported decisions from the Southern District of New York have broadened the scope of Trust Indenture Act section 316(b)’s prohibition on bond restructuring. Conferee Shaffer described the cases involving debtors Education Management Corp. and Caesars Entertainment, in which courts ruled that section 316 protects the practical right to be paid, and not just the mere legal right to be paid. Thus, unanimous consent may be required for any amendments or restructurings that reduce the likelihood of payment to bondholders.

At the request of the Conference Chair, Conferee Resnick prepared language for proposed legislation that would implement the new chapter. The Business Debtor Committee reviewed and revised the draft. The draft was then submitted to the Drafting Committee, which made further revisions.

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Conferee Shaffer summarized the key elements of the proposed legislation. Only voluntary petitions would be permitted. There will be no estate created. The debtor will be allowed to continue to operate (whether in the ordinary course or outside of the ordinary course) without the need for court approval. Any restrictions on the company’s actions would arise from nonbankruptcy law, including its own contracts.

There will be no assumption or rejection of executory contracts.

There will be no avoiding power causes of action, and all avoiding power deadlines would be tolled.

There will be no automatic stay, but there will be two stays of enforcement of ipso facto clauses: (1) contractual counterparties and other creditors will not be able to exercise remedies based upon bankruptcy ipso facto clauses, and (2) there will be a temporary stay of ipso facto clauses that relate to the financial condition of the debtor, but only as to the creditors whose debts are being restructured in the case; this stay expires at the end of the case. Contractual counterparties and other creditors otherwise would retain all of their rights.

The debtor would have the exclusive right to file a plan. There are provisions for a disclosure statement that largely mimic chapter 11, although the Committee anticipates that prepacks would be frequently used. The plan must be confirmed within 90 days unless that time is extended for cause.

The proposed new chapter is limited to restructuring classes of “borrowed money,” and it is not intended to affect any party other than the impaired classes of debt that are being restructured in the case.

There will be no cram down, including of equity. For example, if the treatment of bondholders under the proposed plan would require dilution of equity, and that dilution would require a vote under the debtor’s nonbankruptcy rules of governance, that vote would have to occur for the plan to be confirmed or effectuated. The requirement for confirmation is a 2/3 majority of the disinterested bondholders.

Before discussion began, Chair Levin noted that it was his intention, upon the Conference’s approval of the proposal, to offer the proposed legislation to Congress for its consideration as soon as possible.

A discussion of the proposed chapter followed. Conferee Dunne offered an example of a situation in which the proposed legislation would have brought much quicker resolution and offered his support for the proposal.

Conferee Klee urged that proposed section 1625 be revised to clarify that affiliates of the debtor have the protection of the automatic stay with regard to ipso facto clauses. Conferee Vris seconded Conferee Klee’s suggestion. While he

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noted that such a change may create a negative implication that affiliates are not protected under sections 365(b) and (e) and similar provisions, Conferee Klee stated his preference that the proposed chapter be clarified with regard to affiliates, and that if other sections of the Code needed to be further conformed, then that should be regarded as additional necessary work. Conferee Sprayregen echoed Conferee Klee’s concerns.

Conferee Gropper stated that the recent Trust Indenture Act cases may be reversed on appeal, but that the proposal nevertheless is necessary and useful, even without the recent cases. Conferee Holt asked why section 1603 is giving equity holders a broad right to be heard if the proceeding is not to affect their rights. Conferee Shaffer responded that because the proceeding is judicial, the Committee felt that it was inappropriate to restrict the right to be heard. Conferee Holt then suggested adding sections 524(e) and 506(d) to proposed section 1601(a) (which is the section of the new chapter that incorporates other sections of the Bankruptcy Code). He also noted that section 1 of the proposed bill, which would amend section 103 of the Code, should be drafted in conformity with section 103(k) rather than 103(f).

Conferees Glosband and Vris raised a number of points regarding whether affiliate guarantors and co-obligors could get a non-debtor release under the restructuring without themselves filing for relief under the new chapter. Conferee Pachulski, on behalf of the Committee, responded that the proposed chapter would require affiliates to file bankruptcy, under the same bond restructuring chapter in most instances, in order to get relief. Conferee Vris noted that some indentures permit a release of the guarantors by a majority vote, and that if the proposed chapter would not permit that, it could have less reach than a contractual restructuring. Conferee Shaffer responded that there was concern about making this chapter too attractive such that companies would file under this chapter to avoid the procedural burdens of chapter 11. Thus, the proposal tries to sharply limit itself to restructure the debt for borrowed money for only those entities that file. Conferee Pachulski also noted that if as a contractual matter the non-filed guarantors could be released, then nothing in the new chapter would prevent them from getting a release. The guarantors would only have to file themselves under the new chapter if they wanted to obtain more relief than they could under the contract.

Conferee Vris stated that if the restructuring would allow for reducing bond principal, that it should be similarly able to address the guarantees. Conferee Dunne noted that sometimes the affiliates are foreign entities, insurance companies, or the like that cannot file for bankruptcy, either as a legal or practical matter.

Conferee Pachulski noted that providing a release to affiliated co-debtors or guarantors raised the issue of whether the best interests test would be applied at

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the affiliate level or at the corporate-group level. He expressed reservations about applying the best interest tests to affiliates that have not filed bankruptcy.

The Conference then returned to the earlier concern expressed by Conferee Klee and discussed whether section 1625(1)(a) and (c) should be amended to add “or an affiliate” following the “debtor.” There was support to make such a change.

Conferee Glosband explained how these situations would be treated under European law. Conferee Bernstein also expressed support for giving non-filing guarantors the benefits of the debtors’ filing, with the best interest test being applied on a corporate group basis. Conferee Pachulski noted that except for foreign subsidiaries, the same outcome could be reached by filing the company and the domestic guarantors under the new chapter and proposing a joint plan.

Conferee Ed Smith offered a hypothetical to illustrate the concern about affiliates. He noted that if the restructuring reduced the liability to 75% of the debt for the bondholders, but did not treat the liability of the affiliates, then that after the bankruptcy the affiliates would be liable for the remaining 25% of the obligation. In turn, the affiliates would sue the debtor to recover the amounts they paid to the bondholders, with the effect that the debtor would still have paid the entire initial amount of the obligation.

Conferee Westbrook asked whether the proposal is perhaps driven by a “race to the bottom” to compete with jurisdictions without the Trust Indenture Act. Conferee Huebner emphatically rejected that this proposed new chapter is about losing market share for debt agreements to the U.K. or elsewhere. He also agreed with Conferee Pachulski that affiliates should be required to file bankruptcy if they wanted debt reduction and a release.

The Conference then took two votes with regard to the proposal and its discussion.

Does the Conference approve the proposed statute as drafted by the Business Debtor Committee and Drafting Committee, subject to 1) a further vote on the release of affiliated co-guarantors and co-debtors that do not themselves file for relief under the new chapter, and 2) working through some proposed technical amendments?

The Conference voted overwhelmingly in favor of the proposal, with one Conferee opposed.

Whether affiliated guarantors or co-obligors that do not file under the proposed chapter should be able to receive the benefit of the discharge or relief in the confirmed plan?

In favor of the question were 17 Conferees; in opposition were 22 Conferees.

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Chair Levin asked that the Committee further discuss the affiliate guarantors or co-debtors issues and whether any additional changes might be appropriate. He stated that the proposed chapter, with the offered technical revisions, would be circulated to the Conference and upon approval, submitted to Congress.

The Conference then voted overwhelmingly that the proposed chapter be numbered chapter 16, rather than chapter 10.

2. Series LLC

On behalf of the Committee, Conferee Ed Smith briefed the Conference on the legal structure of, and issues arising from, a new entity structure called a “series LLC.” The basic structure is analogous to a parent-subsidiary relationship in corporations. There is a main limited liability company (LLC), and then separate cells that are part of the same series, and therefore related to the parent. These series LCCs are not separate entities and therefore may piggyback on the governance and regulatory compliance of the “parent” LLC. Series LLCs is widely used with limited liability companies formed under Delaware law, and is being recognized by other states. It is a growing trend, and the law is uncertain.

There is an ongoing project by the Commission on Uniform State Laws with regard to series LLC. Its proposal is likely to be that there should be a required public filing to that there is recourse only to the series LLC and not to the parent (sometimes called the “mothership” LLC). Conferee Minkel noted that in the event of a bankruptcy by a series LLC, the applicability of section 1111(b)(1)’s non-recourse treatment would be an issue.

Chair Levin asked whether the Committee was inclined to propose amendments to the Bankruptcy Code or whether it was inclined to await further development. Conferee Ed Smith suggested that Conference monitor developments in this area but take no action at this time.

3. Professional Fees in the wake of Baker Botts v. ASARCO and U.S. Trustee Fee Guidelines

Conferees Sprayregen, Goldstein, and Dunne reported on professional fees in the wake of the Supreme Court’s decision in Baker Botts LLP v. ASARCO LLC, 135 S. Ct. 2158 (2015), that held under section 330(a)(1) of the Bankruptcy Code, estate professionals are not entitled to fees for defending a fee application. The Court applied the American rule that each side pays its own fees, unless a statute or contract provision provides otherwise, and ruled that the Bankruptcy Code does not so provide. In light of the decision, attorneys are examining their engagement letters or retention agreements to consider whether under the court’s ruling, language could be added that clients agree to pay for defending a fee application.

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Conferee Goldstein explained that section 330 authorizes payment for services performed for another and that defense of a fee application is arguably not services for another but for the benefit of the professional. Preparation of a fee application, however, is explicitly compensable under section 330. Conferee Sprayregen noted that it was unclear that if a professional expended time in responding to inquiries or additional information requests about the fee application, such as from the U.S. Trustee, whether that time would be considered “defense” of a fee application and subject to the holding of Baker Botts v. ASARCO.

Conferee Sprayregen reported that the U.S. Trustee fee guidelines have been in effect since November 1, 2013, in cases in which the debtor has $50 million or more in assets and $50 million or more in liabilities (aggregated for jointly administered cases). To date, the fee application process in cases for which the guidelines applied has generally been smooth. Upon the request of Senator Grassley, the GAO issued a report on September 23, 2015, regarding the guidelines. It found that the U.S. Trustee did not find or raise any guideline-related issues in approximately half of the cases covered by the fee guidelines. In the remaining cases, any issues were resolved with no or very minimal involvement of the courts.

Conferee Sprayregen reminded the Conference of two concerns related to the disclosures under the guidelines. One concern related to the preparation of detailed budget and fee guidelines for each fee period. The other related to the disclosure of “blended rates” that are comparative rates for both non-bankruptcy and bankruptcy matters. Conferee Dunne noted that it is expected that the Executive Office of the US. Trustee will release fee guidelines soon that apply to non-lawyers, as the existing guidelines only apply to attorneys.

Chair Levin then invited guest Nan Eitel, Executive Office of the U.S. Trustee, to speak about the fee guidelines. She provided some statistics, including that as the two-year anniversary of the fee guidelines approaches, there have been 129 cases in which the guidelines have applied. She noted that any concerns in these cases were resolved by agreement of the parties. She reported that the required disclosures in retention applications of any bankruptcy-related changes in fees seem to have eliminated the practice of removing, upon the commencement of bankruptcy-related work, a standard discount (such as 10%) for all nonbankruptcy legal work that appears in the firm’s standard engagement with the client. She also stated that many judges believe professional fees are an important factor in venue selection. She concluded by remarking that the Executive Office of the U.S. Trustee planned to continue to exercise discretion in reviewing and responding to professional fee application by attorneys as all parties became more familiar with the guidelines.

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D. Adjournment

Chair Levin adjourned the 2015 Annual Meeting at 10:48 a.m.