Bankruptcy Bill: High Tech and Telecom Provisions
by Nancy A. Peterman and Robert W. Lannan
While most news reports have focused on the consumer provisions of the “Bankruptcy Abuse and Consumer Protection” legislation (the “Bankruptcy Bill”), which has now passed in the Senate and is expected to pass in the House soon, you should be aware of the following two provisions in the Bankruptcy Bill that may impact your practices:
S. 256, 109th Cong., §417; H.R. 685, 109th Cong., §417: Adequate Assurance for Utility Services
Section 417 of the Bankruptcy Bill (in both the bill approved by the Senate and the bill pending in the House) proposes to add a new provision to §366 of the Bankruptcy Code. Under this new provision, in a chapter 11 case, a “utility may alter, refuse or discontinue utility service if during the thirty day period beginning on the date of the filing of the petition, the utility does not receive from the debtor or trustee adequate assurance of payment for utility services that is satisfactory to the utility.” Adequate assurance of payment can be in the form of cash deposits, a letter of credit, a certificate of deposit, a surety bond, a prepayment of utility consumption or some other form of security mutually agreed upon between the utility and the debtor or trustee. The debtor or trustee can no longer provide adequate assurance of future performance to the utility companies by simply granting the utility company an administrative expense claim under the Bankruptcy Code and indicating that they have the cash necessary to pay such claim.
Upon request of a party-in-interest, the court may order modification of the amount of adequate assurance of payment. In doing so, the court may not consider the absence of security before the petition date, the debtor’s timely payment of utility fees before the petition date or the debtor’s ability to pay administrative expense claims.
The proposed legislation also allows a utility company to offset pre-petition amounts due and owing to such utility companies against any pre-petition security deposits, without consent of the court.
This new subsection (c) to §366 of the Bankruptcy Code supplements but does not replace §366(b) of the Bankruptcy Code. Section 366(b) of the Bankruptcy Code currently provides that a utility “may alter, refuse or discontinue service if neither the trustee nor the debtor, within 20 days after the date of the order of relief, furnishes adequate assurance of payment…” 11 U.S.C. §363(b). These two provisions appear to contradict one another.
S. 256, 109th Cong., §1304; H.R. 685, 109th Cong., §1304: Internet-based Credit Solutions
Section 1304 of both the House and Senate versions of the Bankruptcy Bill amends the Federal Truth in Lending Act to require lenders to disclose certain information when soliciting credit card accounts to consumers over the Internet. This information includes annual percentage rates for accounts, annual fees, grace periods for payments and methods for calculating account balances. Under existing law, lenders are already required to disclose this information in direct mail solicitations.