Monday, June 29, 2009

Legal support for US retirees in a bankruptcy situation.

Most people have little contact with lawyers except for wills, sale or purchase of a house, marriage contracts etc. When the company paying your pension goes bankrupt and you face a loss of pension income, it’s only natural that you consider getting legal representation to try to fight for what’s yours. Before you jump into the fire however you need to do some checking and thinking.

If you are being paid a qualified pension from a defined US benefit plan then you will have the support of the Pension Benefit Guaranty Corporation. The PBGC is a government sponsored organization that insures pensions through payments from companies that offer defined benefit plans.

The PBGC will have a seat on the creditor’s committee in bankruptcy proceedings and will represent you in these debates and discussions. It will examine the restructuring or liquidation plans to make sure that a reasonable portion of the money remaining will be paid into the pension trust fund. It will also administer the pension so that you will receive pension checks from the PBGC. So you already have an advocate looking out for you in this case. There is really no need to go seek out a lawyer unless you have over and above the defined pension plan.

If your company offered retiree health care in the US it’s highly likely that they will try to wind up that plan at some point in the bankruptcy proceedings. That means that you may have a claim against the company as an unsecured creditor for the loss of that benefit. The same applies to long term care or life insurance plans that were offered.

The bankruptcy court may call for establishing an 1114 committee to review these benefit plans and the company’s proposals to wind them up. If such a committee is established the judge will require the appointment of a trustee to represent the retirees in the discussions. In this case it is often advantageous for retirees to band together and form a group that can be recognized by the court to sit on the 1114 committee. In the event that the group is given that recognition then they may hire counsel to speak on their behalf and the fees for that will be paid out of the assets of the bankrupt company.

Generally there are legal representatives appointed by the court to act on behalf of the unsecured creditors which include retirees who may have claims against the company. All of the information and decisions made by the court are public and available on a web site that is established for that purpose. Retirees should make sure they know what documents have been presented and what dockets have been issued and recorded. In the case of Nortel the site is managed by epiqsytems and for those who are interested to see the complexity of bankruptcy dockets and proceedings, you can check it out on and browse through the hundreds of documents issued.

For US retirees who are being paid a non qualified pension, or who lost deferred compensation, or severance, it is highly likely that you will want to have some form of legal and actuarial assistance. Doing this on your own can be very costly and may not improve your chance of gaining back the monies owed to you. In our case, we tried to organize as a nation-wide group and seek a single legal representative. We were able to get a few thousand retirees and ex-Nortel to show interest in this approach. We organized regionally with small groups trying to gain the support of people in their region. We also had a steering committee that dealt with the court and also sought out legal representation.

We chose a law firm that seemed to have its act together when it came to arguing bankruptcy claims and then we ran into a roadblock. The law firm was not cheap and they wanted to have at least 1,000 people contributing $250 each before they would start doing any serious business. We ran the campaign nation wide to get people to join up but we were only able to get around 550 people willing to pay and as a result the steering committee and the law firm decided to call it quits. During this early stage one of the lawyers had spent time with the court and had petitioned to have our group represented on the creditor’s committee. The judge ruled against this however and we were set back as basically unsecured creditors.

The strategy of getting a seat on the creditor’s committee is a good one. If others find themselves in the same situation as us with real claims against the bankrupt company, it is important to try to get organized quickly and to petition for a seat on that committee as early as possible. In the case of Nortel by the time we were organized the committee had already bee established and it was very difficult to have the judge recognize a group which seemed to represent a small claim compared to other such as the PBGC who represented a huge pension claim.

In my next report I will continue the saga of our representation and will give you some idea of the work required to get organized.

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