NCPA - National Center for Policy Analysis

Bankruptcy Cases Have Wider Scope Than Meets The Eye

August 24, 2001

Judges in bankruptcy courts would appear to have a quite narrow agenda -- simply deciding who does or doesn't get what when individuals and companies can't meet their bills.

But the implications are much broader. "All the big public-policy issues end up in bankruptcy court sooner or later," says A. Thomas Small, a bankruptcy judge in Raleigh, N.C., and president of the National Conference of Bankruptcy Judges.

Chapter 11 of the Bankruptcy Code makes few provisions for the interests of parties other than debtors, creditors and shareholders. But the resolution of bankruptcy cases often affects people who don't have any direct standing in the case.

  • For example, when Midway Airlines Corp. filed for Chapter 11 protection it fired half its 1,400 employees and canceled service to nine markets -- negatively affecting both the employees and travelers.
  • In May, a San Francisco bankruptcy judge ruled that nearly 14 million ratepayers had no standing in the nation's biggest utility bankruptcy -- that of PG&E Corp. -- and the prospect of higher utility bills was not part of the issue.

The case of NextWave Telecom Inc. reveals that, surprisingly, even the federal government can get shoved aside in bankruptcy court.

  • Nextwave was forced to file for Chapter 11 after it had paid only $500 million to the Federal Communications Commission for $4.7 billion worth of spectrum licenses it had purchased at an FCC auction.
  • Claiming that it was acting as a regulator rather than a creditor, the FCC revoked the licenses and resold them for $16 billion.
  • But a federal appeals court found that the FCC had violated the Bankruptcy Code by repossessing the licenses.

Source: Jess Bravin, "Judges' Actions Have Wide Reach with Bankruptcy," Wall Street Journal, August 24, 2001.

For text (WSJ subscribers)


Browse more articles on Economic Issues