Thursday, October 28, 2010

[Overview] Attestation of PBGC Termination Premium not a bankruptcy, unsecured Dischargeable

An employer who finished a defined benefit plan, while undergoing a reorganisation of Chapter 11 bankruptcy could not avoid paying a severance for PBGC by calling bonus of an unsecured claim, pre-petition that was dischargeable under the Bankruptcy Code, the u.s. Court of Appeals of New York (CA-2) established in PBGC v. Oneida.

PBGC termination premium

Under 4006 (a) (7) ERISA, under certain circumstances an employer terminating a plan single employer must pay a premium of cessation for PBGC. under the "general rule", payment is due from the first month following the month in which the date of cessation. A "special rule", however, if the plan is terminated in the course of a proceeding in bankruptcy reorganization, then the general rule does not apply to the first month following the month in which the employer is rejected by the insolvency proceedings.

The bankruptcy court has ruled in favour of the employer, determine bonus to which a credit of pre-petition dischargeable due to the definition of broad offered the term "claim" in the bankruptcy context.PBGC's Claim to payment of the premium existed before bankruptcy but was subject to a contingency.

PBGC'S entitlement to payment

Reversing the bankruptcy court, the circuit court granted far-reaching failure "credit" but claimed that an application for bankruptcy valid requires (1) a right to payment (2) which arose before filing the petition. Courts must evaluate the substantive law underlying the right to payment — in this case the ERISA plan termination provisions — to determine the validity of the claim.

ERISA 4006 (a) (7) establishes the PBGC payments, but when was the entitlement to payment created? according to the Court of appeal, to the "special rule" contained in 4006 (a) (7) (B) ERISA clearly states that the right to payment PBGC does not exist until the employer discharged from bankruptcy.("The purpose of this rule," the judge said, "is to prevent employers evading terminators Prize while seeking bankruptcy reorganization.")Also the broad construction of the term "credit" in bankruptcy cannot have a right to payment which has not yet arisen under ERISA.

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