11 U.S.C. § 1110 — Aircraft equipment and vessels

Page 247 TITLE 11—BANKRUPTCY § 1110 a party in interest in either case, the Commission may raise and be heard on any issue. The Commission may not appeal from a judgment, order, or decree in a case, but may participate in any appeal by any other party in interest. This is the present law under section 208 of chapter X ([former] 11 U.S.C. 608). HOUSE REPORT NO. 95–595 Section 1109 authorizes the Securities and Exchange Commission and any indenture trustee to intervene in the case at any time on any issue. They may raise an issue or may appear and be heard on an issue that is raised by someone else. The section, following current law, denies the right of appeal to the Securities and Ex- change Commission. It does not, however, prevent the Commission from joining or participating in an appeal taken by a true party in interest. The Commission is merely prevented from initiating the appeal in any ca- pacity. § 1110. Aircraft equipment and vessels (a)(1) Except as provided in paragraph (2) and subject to subsection (b), the right of a secured party with a security interest in equipment de- scribed in paragraph (3), or of a lessor or condi- tional vendor of such equipment, to take posses- sion of such equipment in compliance with a se- curity agreement, lease, or conditional sale con- tract, and to enforce any of its other rights or remedies, under such security agreement, lease, or conditional sale contract, to sell, lease, or otherwise retain or dispose of such equipment, is not limited or otherwise affected by any other provision of this title or by any power of the court. (2) The right to take possession and to enforce the other rights and remedies described in para- graph (1) shall be subject to section 362 if— (A) before the date that is 60 days after the date of the order for relief under this chapter, the trustee, subject to the approval of the court, agrees to perform all obligations of the debtor under such security agreement, lease, or conditional sale contract; and (B) any default, other than a default of a kind specified in section 365(b)(2), under such security agreement, lease, or conditional sale contract— (i) that occurs before the date of the order is cured before the expiration of such 60-day period; (ii) that occurs after the date of the order and before the expiration of such 60-day pe- riod is cured before the later of— (I) the date that is 30 days after the date of the default; or (II) the expiration of such 60-day period; and (iii) that occurs on or after the expiration of such 60-day period is cured in compliance with the terms of such security agreement, lease, or conditional sale contract, if a cure is permitted under that agreement, lease, or contract. (3) The equipment described in this para- graph— (A) is— (i) an aircraft, aircraft engine, propeller, appliance, or spare part (as defined in sec- tion 40102 of title 49) that is subject to a se- curity interest granted by, leased to, or con- ditionally sold to a debtor that, at the time such transaction is entered into, holds an air carrier operating certificate issued pursuant to chapter 447 of title 49 for aircraft capable of carrying 10 or more individuals or 6,000 pounds or more of cargo; or (ii) a vessel documented under chapter 121 of title 46 that is subject to a security inter- est granted by, leased to, or conditionally sold to a debtor that is a water carrier that, at the time such transaction is entered into, holds a certificate of public convenience and necessity or permit issued by the Depart- ment of Transportation; and (B) includes all records and documents relat- ing to such equipment that are required, under the terms of the security agreement, lease, or conditional sale contract, to be surrendered or returned by the debtor in connection with the surrender or return of such equipment. (4) Paragraph (1) applies to a secured party, lessor, or conditional vendor acting in its own behalf or acting as trustee or otherwise in behalf of another party. (b) The trustee and the secured party, lessor, or conditional vendor whose right to take pos- session is protected under subsection (a) may agree, subject to the approval of the court, to extend the 60-day period specified in subsection (a)(1). (c)(1) In any case under this chapter, the trust- ee shall immediately surrender and return to a secured party, lessor, or conditional vendor, de- scribed in subsection (a)(1), equipment described in subsection (a)(3), if at any time after the date of the order for relief under this chapter such se- cured party, lessor, or conditional vendor is en- titled pursuant to subsection (a)(1) to take pos- session of such equipment and makes a written demand for such possession to the trustee. (2) At such time as the trustee is required under paragraph (1) to surrender and return equipment described in subsection (a)(3), any lease of such equipment, and any security agree- ment or conditional sale contract relating to such equipment, if such security agreement or conditional sale contract is an executory con- tract, shall be deemed rejected. (d) With respect to equipment first placed in service on or before October 22, 1994, for purposes of this section— (1) the term ‘‘lease’’ includes any written agreement with respect to which the lessor and the debtor, as lessee, have expressed in the agreement or in a substantially contempora- neous writing that the agreement is to be treated as a lease for Federal income tax pur- poses; and (2) the term ‘‘security interest’’ means a purchase-money equipment security interest. (Pub. L. 95–598, Nov. 6, 1978, 92 Stat. 2629; Pub. L. 103–272, § 5(c), July 5, 1994, 108 Stat. 1373; Pub. L. 103–394, title II, § 201(a), Oct. 22, 1994, 108 Stat. 4119; Pub. L. 106–181, title VII, § 744(b), Apr. 5, 2000, 114 Stat. 177; Pub. L. 109–304, § 17(b)(2), Oct. 6, 2006, 120 Stat. 1707.) HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Section 1110 of the House amendment adopts an iden- tical provision contained in the House bill without Page 248 TITLE 11—BANKRUPTCY § 1110 modifications contained in the Senate amendment. This section protects a limited class of financiers of aircraft and vessels and is intended to be narrowly con- strued to prevent secured parties or lessors from gain- ing the protection of the section unless the interest of such lessor or secured party is explicitly enumerated therein. It should be emphasized that under section 1110(a) a debtor in possession or trustee is given 60 days after the order for relief in a case under chapter 11, to have an opportunity to comply with the provisions of section 1110(a). During this time the automatic stay will apply and may not be lifted prior to the expiration of the 60-day period. Under section 1110(b), the debtor and secured party or lessor are given an opportunity to extend the 60-day period, but no right to reduce the period is in- tended. It should additionally be noted that under sec- tion 1110(a) the trustee or debtor in possession is not re- quired to assume the executory contract or unexpired lease under section 1110; rather, if the trustee or debtor in possession complies with the requirements of section 1110(a), the trustee or debtor in possession is entitled to retain the aircraft or vessels subject to the normal re- quirements of section 365. The discussion regarding air- craft and vessels likewise applies with respect to rail- road rolling stock in a railroad reorganization under section 1168. SENATE REPORT NO. 95–989 This section, to a large degree, preserves the protec- tion given lessors and conditional vendors of aircraft to a certificated air carrier or of vessels to a certificated water carrier under section 116(5) and 116(6) of present Chapter X [section 516(5) and (6) of former title 11]. It is modified to conform with the consolidation of Chap- ters X and XI [chapters 10 and 11 of former title 11] and with the new chapter 11 generally. It is also modified to give the trustee in a reorganization case an oppor- tunity to continue in possession of the equipment in question by curing defaults and by making the required lease or purchase payments. This removes the absolute veto power over a reorganization that lessors and con- ditional vendors have under present law, while enti- tling them to protection of their investment. The section overrides the automatic stay or any power of the court to enjoin taking of possession of cer- tain leased, conditionally sold, or liened equipment, unless, the trustee agrees to perform the debtor’s obli- gations and cures all prior defaults (other than defaults under ipso facto or bankruptcy clauses) within 60 days after the order for relief. The trustee and the equip- ment financer are permitted to extend the 60-day pe- riod by agreement. During the first 60 days, the auto- matic stay will apply to prevent foreclosure unless the creditor gets relief from the stay. The effect of this section will be the same if the debt- or has granted the security interest to the financer or if the debtor is leasing equipment from a financer that has leveraged the lease and leased the equipment sub- ject to a security interest of a third party. Editorial Notes AMENDMENTS 2006—Subsec. (a)(3)(A)(ii). Pub. L. 109–304 substituted ‘‘vessel documented under chapter 121 of title 46’’ for ‘‘documented vessel (as defined in section 30101(1) of title 46)’’. 2000—Pub. L. 106–181 amended section catchline and text generally, substituting present provisions con- sisting of subsecs. (a) to (d) for former subsecs. (a) to (c) which contained somewhat similar provisions. 1994—Pub. L. 103–394 amended section generally. Prior to amendment, section read as follows: ‘‘(a) The right of a secured party with a purchase- money equipment security interest in, or of a lessor or conditional vendor of, whether as trustee or otherwise, aircraft, aircraft engines, propellers, appliances, or spare parts, as defined in section 40102(a) of title 49, or vessels of the United States, as defined in section 30101 of title 46, that are subject to a purchase-money equip- ment security interest granted by, leased to, or condi- tionally sold to, a debtor that is an air carrier oper- ating under a certificate of convenience and necessity issued by the Secretary of Transportation, or a water carrier that holds a certificate of public convenience and necessity or permit issued by the Interstate Com- merce Commission, as the case may be, to take posses- sion of such equipment in compliance with the provi- sions of a purchase-money equipment security agree- ment, lease, or conditional sale contract, as the case may be, is not affected by section 362 or 363 of this title or by any power of the court to enjoin such taking of possession, unless— ‘‘(1) before 60 days after the date of the order for re- lief under this chapter, the trustee, subject to the court’s approval, agrees to perform all obligations of the debtor that become due on or after such date under such security agreement, lease, or conditional sale contract, as the case may be; and ‘‘(2) any default, other than a default of a kind specified in section 365(b)(2) of this title, under such security agreement, lease, or conditional sale con- tract, as the case may be— ‘‘(A) that occurred before such date is cured be- fore the expiration of such 60-day period; and ‘‘(B) that occurs after such date is cured before the later of— ‘‘(i) 30 days after the date of such default; and ‘‘(ii) the expiration of such 60-day period. ‘‘(b) The trustee and the secured party, lessor, or con- ditional vendor, as the case may be, whose right to take possession is protected under subsection (a) of this section may agree, subject to the court’s approval, to extend the 60-day period specified in subsection (a)(1) of this section.’’ Subsec. (a). Pub. L. 103–272 substituted ‘‘section 40102(a) of title 49’’ for ‘‘section 101 of the Federal Avia- tion Act of 1958 (49 U.S.C. 1301)’’, ‘‘section 30101 of title 46’’ for ‘‘subsection B(4) of the Ship Mortgage Act, 1920 (46 U.S.C. 911(4))’’, and ‘‘Secretary of Transportation’’ for ‘‘Civil Aeronautics Board’’. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2000 AMENDMENT Amendment by Pub. L. 106–181 applicable only to fis- cal years beginning after Sept. 30, 1999, see section 3 of Pub. L. 106–181, set out as a note under section 106 of Title 49, Transportation. EFFECTIVE DATE OF 1994 AMENDMENT Amendment by Pub. L. 103–394 effective Oct. 22, 1994, with this section, as amended by section 201 of Pub. L. 103–394, applicable with respect to any lease, as defined by subsec. (c) of this section, entered into in connection with a settlement of any proceeding in any case pend- ing under this title on Oct. 22, 1994, see section 702 of Pub. L. 103–394, set out as a note under section 101 of this title. ABOLITION OF INTERSTATE COMMERCE COMMISSION AND TRANSFER OF FUNCTIONS Interstate Commerce Commission abolished and func- tions of Commission transferred, except as otherwise provided in Pub. L. 104–88, to Surface Transportation Board effective Jan. 1, 1996, by section 1302 of Title 49, Transportation, and section 101 of Pub. L. 104–88, set out as a note under section 1301 of Title 49. References to Interstate Commerce Commission deemed to refer to Surface Transportation Board, a member or employee of the Board, or Secretary of Transportation, as appro- priate, see section 205 of Pub. L. 104–88, set out as a note under section 1301 of Title 49. AIRCRAFT EQUIPMENT SETTLEMENT LEASES Pub. L. 103–7, Mar. 17, 1993, 107 Stat. 36, provided that: ‘‘SECTION 1. SHORT TITLE. ‘‘This Act may be cited as the ‘Aircraft Equipment Settlement Leases Act of 1993’. Page 249 TITLE 11—BANKRUPTCY § 1112 ‘‘SEC. 2. TREATMENT OF AIRCRAFT EQUIPMENT SETTLEMENT LEASES WITH THE PENSION BENEFIT GUARANTY CORPORATION. ‘‘In the case of any settlement of liability under title IV of the Employee Retirement Income Security Act of 1974 [29 U.S.C. 1301 et seq.] entered into by the Pension Benefit Guaranty Corporation and one or more other parties, if— ‘‘(1) such settlement was entered into before, on, or after the date of the enactment of this Act [Mar. 17, 1993], ‘‘(2) at least one party to such settlement was a debtor under title 11 of the United States Code, and ‘‘(3) an agreement that is entered into as part of such settlement provides that such agreement is to be treated as a lease, then such agreement shall be treated as a lease for pur- poses of section 1110 of such title 11.’’ § 1111. Claims and interests (a) A proof of claim or interest is deemed filed under section 501 of this title for any claim or interest that appears in the schedules filed under section 521(a)(1) or 1106(a)(2) of this title, except a claim or interest that is scheduled as disputed, contingent, or unliquidated. (b)(1)(A) A claim secured by a lien on property of the estate shall be allowed or disallowed under section 502 of this title the same as if the holder of such claim had recourse against the debtor on account of such claim, whether or not such holder has such recourse, unless— (i) the class of which such claim is a part elects, by at least two-thirds in amount and more than half in number of allowed claims of such class, application of paragraph (2) of this subsection; or (ii) such holder does not have such recourse and such property is sold under section 363 of this title or is to be sold under the plan. (B) A class of claims may not elect application of paragraph (2) of this subsection if— (i) the interest on account of such claims of the holders of such claims in such property is of inconsequential value; or (ii) the holder of a claim of such class has re- course against the debtor on account of such claim and such property is sold under section 363 of this title or is to be sold under the plan. (2) If such an election is made, then notwith- standing section 506(a) of this title, such claim is a secured claim to the extent that such claim is allowed. (Pub. L. 95–598, Nov. 6, 1978, 92 Stat. 2630; Pub. L. 111–327, § 2(a)(32), Dec. 22, 2010, 124 Stat. 3561.) HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS A discussion of section 1111(b) of the House amend- ment is best considered in the context of confirmation and will therefore, be discussed in connection with sec- tion 1129. SENATE REPORT NO. 95–989 This section dispenses with the need for every cred- itor and equity security holder to file a proof of claim or interest in a reorganization case. Usually the debt- or’s schedules are accurate enough that they will suf- fice to determine the claims or interests allowable in the case. Thus, the section specifies that any claim or interest included on the debtor’s schedules is deemed filed under section 501. This does not apply to claims or interests that are scheduled as disputed, contingent, or unliquidated. Editorial Notes AMENDMENTS 2010—Subsec. (a). Pub. L. 111–327 substituted ‘‘521(a)(1)’’ for ‘‘521(1)’’. § 1112. Conversion or dismissal (a) The debtor may convert a case under this chapter to a case under chapter 7 of this title unless— (1) the debtor is not a debtor in possession; (2) the case originally was commenced as an involuntary case under this chapter; or (3) the case was converted to a case under this chapter other than on the debtor’s re- quest. (b)(1) Except as provided in paragraph (2) and subsection (c), on request of a party in interest, and after notice and a hearing, the court shall convert a case under this chapter to a case under chapter 7 or dismiss a case under this chapter, whichever is in the best interests of creditors and the estate, for cause unless the court determines that the appointment under section 1104(a) of a trustee or an examiner is in the best interests of creditors and the estate. (2) The court may not convert a case under this chapter to a case under chapter 7 or dismiss a case under this chapter if the court finds and specifically identifies unusual circumstances es- tablishing that converting or dismissing the case is not in the best interests of creditors and the estate, and the debtor or any other party in interest establishes that— (A) there is a reasonable likelihood that a plan will be confirmed within the timeframes established in sections 1121(e) and 1129(e) of this title, or if such sections do not apply, within a reasonable period of time; and (B) the grounds for converting or dismissing the case include an act or omission of the debtor other than under paragraph (4)(A)— (i) for which there exists a reasonable jus- tification for the act or omission; and (ii) that will be cured within a reasonable period of time fixed by the court. (3) The court shall commence the hearing on a motion under this subsection not later than 30 days after filing of the motion, and shall decide the motion not later than 15 days after com- mencement of such hearing, unless the movant expressly consents to a continuance for a spe- cific period of time or compelling circumstances prevent the court from meeting the time limits established by this paragraph. (4) For purposes of this subsection, the term ‘‘cause’’ includes— (A) substantial or continuing loss to or dimi- nution of the estate and the absence of a rea- sonable likelihood of rehabilitation; (B) gross mismanagement of the estate; (C) failure to maintain appropriate insur- ance that poses a risk to the estate or to the public; (D) unauthorized use of cash collateral sub- stantially harmful to 1 or more creditors; (E) failure to comply with an order of the court;