New Chapter 11 Bankruptcy Rules In The Pipeline?The “Protecting Employees and Retirees in Business Bankruptcies Act of 2010” was designed to change bankruptcy rules regarding the treatment of employees, retirees and collective-bargaining agreements, and executive compensation during corporate bankruptcy.  The bill was introduced earlier this year by Senate Majority Whip Richard Durbin, D-Ill., and House Judiciary Committee Chairman John Conyers Jr., D-Mich. If passed, the new bankruptcy rule could have far reaching ramifications for companies filing Chapter 11 bankruptcy.  Below are a few of the proposed Chapter 11 bankruptcy changes:

* The proposed rules would require firms in bankruptcy to disclose executive compensation.  Also executive compensation will be subject to bankruptcy court approval.

* The proposed bankruptcy rules would prohibit bonus and incentive payments to executives of firms in bankruptcy. 

* The proposed bankruptcy rules would prohibit executives from receiving retiree benefits if the company’s employees have lost compensation and benefits.

* The proposed bankruptcy rules if passed could grant employee unions creditor status giving them the power to file a proof of claim in the bankruptcy case. 

* The proposed bankruptcy rules would further limit the conditions under which a bankrupt company could sever their collective bargaining agreements during bankruptcy. 

* The proposed bankruptcy rules would prohibit companies from filing bankruptcy in an effort to stop or delay collective-bargaining litigation.

* The proposed bankruptcy rules would increase the maximum value of wage claims from $10,000 per employee to $20,000 per employee.

* The proposed bankruptcy rules would waive the requirement that wage and benefit claims be filed within 180 days after a bankruptcy filing in order to receive priority claim status.  

While many of these proposed rules are extremely popular and beneficial to employees it could backfire on companies and by extension employees during bankruptcy.  If executive compensation and benefits are curbed for top performing executives it could cause them to flee to healthier companies after a bankruptcy filing making the business’ chances of survival just that much thinner.  However there must be a balance between fairly compensating the executives and protecting lower level employees from harm during bankruptcy.