Home Health Care Matters Section 1114 Review of Section 1114

Review of Section 1114

Review of Section 1114 Bankruptcy Code

In order to reduce retiree health benefits, a debtor/ employer operating under Chapter 11 must comply with the specific requirements of Section 1114 of the Bankruptcy Code. Section 1114 establishes two methods by which a debtor can obtain changes to retiree health benefits: (1) it can negotiate a consensual agreement with the designated representative of the retirees or, (2) if negotiations fail, it may file an application with the Bankruptcy Court to have the Court impose the same modifications. Provided below is a summary of the procedures and timetable set forth in Section 1114.

DESIGNATION OF RETIREE REPRESENTATIVE

Section 1114 assumes that if retiree benefits are derived from a collective bargaining agreement, the union that negotiated that contract will represent the retirees.
If the union decides not to represent its retirees or if an objection to the union being the retiree representative is made and sustained by the Court, the Court will appoint a committee of retirees.
If the retiree health benefits being received by a group of retirees did not result from a labor contract negotiated by a union, the Court will appoint a committee to represent those retirees.

NEGOTIATIONS OVER THE EMPLOYER'S PROPOSAL

The employer must make a proposal to the retirees’ representative that contains only those modifications that are “necessary to the reorganization of the debtor and assures that all creditors, the debtor and all of the affected parties are treated fairly and equitably.”
The employer must provide the retirees’ representative with the proposal and all “relevant information as is necessary to evaluate the proposal.” The most critical information that the debtor has to provide is evidence that supports its claim that the proposed changes are indeed necessary and fair and equitable.
The debtor must meet with the retirees’ representative and “confer in good faith in attempting to reach mutually satisfactory modifications” of the retiree health benefits.
If the debtor cannot reach an agreement with the retirees’ representative, it may file an application with the bankruptcy court to change the retiree health benefits.
The debtor remains obligated to continue to meet with the retirees’ representative until the date of the hearing on the application.

COURT'S CONSIDERATION OF THE APPLICATION

In order for the court to approve the application, the court must find that:
1. the debtor's proposal
  1. “is necessary to permit the reorganization of the debtor”,
  2. “assures that all creditors, the debtor, and all of the affected parties are treated fairly and equitably”, and
  3. “is clearly favored by the balance of the equities”.
2. the debtor has provided the representative with all relevant information that is necessary to evaluate the proposal; and
3. the retirees' representative has refused to accept the proposal without good cause. In turn, the union would have to establish that it had good cause to reject the company's proposal. Examples of “good cause” would be proof that the changes sought are not necessary or fair and equitable.
The court is prohibited from imposing modifications that are worse than those contained in the debtor’s proposal to the retirees’ representative.

SCHEDULING

The court must schedule a hearing on the debtor’s application to change retiree health benefits not later than fourteen (14) days after the filing of the application.
The debtor, however, must provide the retirees’ representative and other interested parties notice of the hearing at least ten (10) days before the date of the hearing.
The Court must rule on the application to modify retiree health benefits within ninety (90) days after the hearing begin

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