Informational Hearing
Utilities & Federal Litigation:
An Assessment of Process, Risks & Benefits
State Capitol, California Room 4203
February 8, 2001
10:00 a.m. to 12:00 p.m.
I. Opening Comments
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Senator Debra Bowen, Chairwoman
Senate Energy, Utilities & Communications Committee
II. Procedural Overview of Southern California Edison v. Lynch, et al and Pacific Gas & Electric v. Lynch, et al
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Clark Kelso, Director
Capital Center for Government Law & Policy, University of the Pacific, McGeorge School of Law
III. What Happens in a Utility Bankruptcy?
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Matthew J. Botica & David W. Wirt, Attorneys at Law
Winston & Strawn
Counsel to the Senate
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Steven H. Felderstein, Attorney at Law
Felderstein Willoughby & Pascuzzi
Counsel to the Attorney General
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Alan W. Kornberg, Attorney at Law
Paul, Weiss, Rifkind, Wharton & Garrison
Counsel to the Public Utilities Commission
Bankruptcy: An Overview
Bankruptcy law provides for the development of a plan that allows a debtor, who is unable to pay his creditors, to resolve his debts through the division of his assets among his creditors. This supervised division also allows the interests of all creditors to be treated with some measure of equality. Certain bankruptcy proceedings allow a debtor to stay in business and use revenue generated to resolve his or her debts. An additional purpose of bankruptcy law is to allow certain debtors to free themselves (to be discharged) of the financial obligations they have accumulated, after their assets are distributed, even if their debts have not been paid in full.
Bankruptcy law is federal statutory law contained in Title 11 of the United States Code. Congress passed the Bankruptcy Code under its Constitutional grant of authority to "establish. . . uniform laws on the subject of Bankruptcy throughout the United States." See U.S. Constitution Article I, Section 8. States may not regulate bankruptcy though they may pass laws that govern other aspects of the debtor-creditor relationship. A number of sections of Title 11 incorporate the debtor-creditor law of the individual states.
Bankruptcy proceedings are supervised by and litigated in the United States Bankruptcy Courts. These courts are a part of the District Courts of The United States. The United States Trustees were established by Congress to handle many of the supervisory and administrative duties of bankruptcy proceedings. Proceedings in bankruptcy courts are governed by the Bankruptcy Rules which were promulgated by the Supreme Court under the authority of Congress.
There are two basic types of Bankruptcy proceedings. A filing under Chapter 7 is called liquidation. It is the most common type of bankruptcy proceeding. Liquidation involves the appointment of a trustee who collects the non-exempt property of the debtor, sells it and distributes the proceeds to the creditors. Bankruptcy proceedings under Chapters 11, 12, and 13 involves the rehabilitation of the debtor to allow him or her to use future earnings to pay off creditors. Under Chapter 7, 12, 13, and some 11 proceedings, a trustee is appointed to supervise the assets of the debtor. A bankruptcy proceeding can either be entered into voluntarily by a debtor or initiated by creditors. After a bankruptcy proceeding is filed, creditors, for the most part, may not seek to collect their debts outside of the proceeding. The debtor is not allowed to transfer property that has been declared part of the estate subject to proceedings. Furthermore, certain pre-proceeding transfers of property, secured interests, and liens may be delayed or invalidated. Various provisions of the Bankruptcy Code also establish the priority of creditors' interests.
Source: Legal Information Institute, Cornell University http://www.law.cornell.edu/topics/bankruptcy.html
