Chapter 11 Liquidation and its Effect on Collective Bargaining Agreements

(Excerpt)Sections 1113 and 1114 of title 11 of the United States Code (the “Bankruptcy Code”) allow a debtor to reject its collective bargaining agreements and payment of retiree benefits, subject to certain statutory conditions being met. These provisions apply to companies that employ unionized workers who receive compensation and benefits pursuant to a collective bargaining agreement. Both sections, however, only apply to a debtor that is “reorganizing.” Moreover, courts have held that section 1114, which governs the payment of insurance benefits to retirees, permits modification of obligations under a statute, such as the Coal Industry Retiree Health Benefit Act of 1992 (the “Coal Act”). This memo discusses how contractual rejection and modification can be reconciled with obligations under the Coal Act and the implications of permitting modification of obligations under the Coal Act. Part I examines the holding of In re Alpha Nat. Res., Inc. Part II addresses how Coal Act obligations can be reconciled with modification in bankruptcy. Part III discusses holdings in Alabama and Kentucky on modification of Coal Act obligations and the implications that follow.