11 U.S.C. § 926 — Avoiding powers

Page 232 TITLE 11—BANKRUPTCY § 925 405(b) of former title 11]. The Rules, in Rule 9–7, copy the provisions of section 85(b), with additional matter. As noted above, section 405(d) of title IV will continue those Rules in effect. Because the form, time of filing, and nature of the list, are procedural matters that may call for some flexibility, those details have been left to the Rules. § 925. Effect of list of claims A proof of claim is deemed filed under section 501 of this title for any claim that appears in the list filed under section 924 of this title, except a claim that is listed as disputed, contingent, or unliquidated. (Pub. L. 95–598, Nov. 6, 1978, 92 Stat. 2623.) HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Section 925 of the Senate amendment regarding venue and fees has been deleted. SENATE REPORT NO. 95–989 Section 926 [enacted as section 925] follows the policy contained in section 88(a) of the present Act [section 408(a) of former title 11], though certain details are left to the Rules. The language of section 926 is the same as that of proposed 11 U.S.C. 1111, which applies in chapter 11 cases. The list of creditors filed under section 924 is given weight as prima facie evidence of the claims list- ed (except claims that are listed as disputed, contin- gent, or unliquidated), which are deemed filed under section 501, obviating the need for listed creditors to file proofs of claim. § 926. Avoiding powers (a) If the debtor refuses to pursue a cause of action under section 544, 545, 547, 548, 549(a), or 550 of this title, then on request of a creditor, the court may appoint a trustee to pursue such cause of action. (b) A transfer of property of the debtor to or for the benefit of any holder of a bond or note, on account of such bond or note, may not be avoided under section 547 of this title. (Pub. L. 95–598, Nov. 6, 1978, 92 Stat. 2623; Pub. L. 100–597, § 6, Nov. 3, 1988, 102 Stat. 3029.) HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Section 926 of the House amendment is derived from section 928 of the Senate bill. The provision enables creditors to request the court to appoint a trustee to pursue avoiding powers if the debtor refuses to exercise those powers. Section 901 of the House amendment makes a corresponding change to incorporate avoiding powers included in the Senate amendment, but ex- cluded from the House bill. SENATE REPORT NO. 95–989 This section [928 (enacted as section 926)] adopts cur- rent section 85(h) [section 405(h) of former title 11] which provides for a trustee to be appointed for the purpose of pursuing an action under an avoiding power, if the debtor refuses to do so. This section is necessary because a municipality might, by reason of political pressure or desire for future good relations with a par- ticular creditor or class of creditors, make payments to such creditors in the days preceding the petition to the detriment of all other creditors. No change in the elect- ed officials of such a city would automatically occur upon filing of the petition, and it might be very awk- ward for those same officials to turn around and de- mand the return of the payments following the filing of the petition. Hence, the need for a trustee for such pur- pose. The general avoiding powers are incorporated by ref- erence in section 901 and are broader than under cur- rent law. Preference, fraudulent conveyances, and other kinds of transfers will thus be voidable. Incorporated by reference also is the power to accept or reject executory contracts and leases (section 365). Within the definition of executory contracts are collec- tive bargaining agreements between the city and its employees. Such contracts may be rejected despite con- trary State laws. Courts should readily allow the rejec- tion of such contracts where they are burdensome, the rejection will aid in the municipality’s reorganization and in consideration of the equities of each case. On the last point, ‘‘[e]quities in favor of the city in chapter 9 will be far more compelling than the equities in favor of the employer in chapter 11. Onerous employment ob- ligations may prevent a city from balancing its budget for some time. The prospect of an unbalanced budget may preclude judicial confirmation of the plan. Unless a city can reject its labor contracts, lack of funds may force cutbacks in police, fire, sanitation, and welfare services, imposing hardships on many citizens. In addi- tion, because cities in the past have often seemed im- mune to the constraint of ‘‘profitability’’ faced by pri- vate businesses, their wage contracts may be relatively more onerous than those in the private sector.’’ Execu- tory Contracts and Municipal Bankruptcy, 85 Yale L. J. 957, 965 (1976) (footnote omitted). Rejection of the con- tracts may require the municipalities to renegotiate such contracts by state collective bargaining laws. It is intended that the power to reject collective bargaining agreements will pre-empt state termination provisions, but not state collective bargaining laws. Thus, a city would not be required to maintain existing employ- ment terms during the renegotiation period. Editorial Notes AMENDMENTS 1988—Pub. L. 100–597 designated existing provisions as subsec. (a) and added subsec. (b). Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 1988 AMENDMENT Amendment by Pub. L. 100–597 effective Nov. 3, 1988, but not applicable to any case commenced under this title before that date, see section 12 of Pub. L. 100–597, set out as a note under section 101 of this title. § 927. Limitation on recourse The holder of a claim payable solely from spe- cial revenues of the debtor under applicable non- bankruptcy law shall not be treated as having recourse against the debtor on account of such claim pursuant to section 1111(b) of this title. (Added Pub. L. 100–597, § 7(2), Nov. 3, 1988, 102 Stat. 3029.) Editorial Notes PRIOR PROVISIONS A prior section 927 was renumbered section 930 of this title. Statutory Notes and Related Subsidiaries EFFECTIVE DATE Section effective Nov. 3, 1988, but not applicable to any case commenced under this title before that date, see section 12 of Pub. L. 100–597, set out as an Effective Date of 1988 Amendment note under section 101 of this title.