mr. speaker , i rise in support of senate bill 256 and urge its adoption by the house . 
whether or not we have a cost of $ 400 per household or some other cost , i think it is clear to all americans that we pay a cost if we have excessive bankruptcies in america . 
what we are looking for here is workable markets where consumers have the opportunity to borrow money at the lowest cost . 
hopefully , they are not above 18 percent ; certainly not at 75 percent . 
the market does a remarkable job for that purpose . 
for more than 7 years now , almost as long as i have been in congress , we have struggled with the rising tide of bankruptcy abuse which threatens the delicate balance in this country between creditors and debtors . 
as this reform measure has developed , slowly , inexorably , we have dealt with each issue : framing , debating , considering , and ultimately resolving each controversy . 
progressive congresses have moved toward ultimate resolution , until finally today the house has been presented with a bill that it can send directly to the president for signature . 
as chairman of the subcommittee on commercial and administrative law , i take considerable satisfaction that , through collective effort , we would be able to achieve what many said would never happen . 
we have crafted fair and balanced legislation dealing in a straightforward manner with a problem that has vexed the nation for the past decade and threatens economic growth and stability . 
by the way , the bankruptcy act has not been amended for 25 years in a serious way . 
the american people will truly be well served by this effort . 
this bill is a rare achievement of reducing disparity in the bankruptcy system . 
it establishes more uniform and predictable standards . 
it strengthens the integrity of the bankruptcy process . 
it deals with the continuing wave of bankruptcy filings and abuse of state homestead exemptions . 
it will reinforce the public perception that the system is fair for all participants . 
it improves the administration of the bankruptcy process . 
and , finally , it restores a measure of personal responsibility to the bankruptcy system that is spiraling out of control . 
mr. speaker , my constituents need this legislation , and america needs this legislation , and i urge support today for s. 256 . 
i would also note that the need for additional bankruptcy judgeships may need to be considered to reflect the numbers submitted by the judicial conference 's most recent report . 
additional judgeships are sorely needed in a number of districts across the country , including my state of utah . 
i was heartened by the assurance of the chairman of the committee on the judiciary during the markup of senate 256 that this matter will be considered later this year . 
in that regard , i would like to thank the gentleman from georgia ( mr. kingston ) xz4002210 who has worked tirelessly on the issue of expanding the number of bankruptcy judges we have to meet this need . 
mr. speaker , at this point i will place additional information on the bill in the record . 
during the course of the senate judiciary committee 's consideration of s. 256 , a provision was added to deal with excessive retention bonuses , severance payments and other forms of inducements paid by a debtor to retain key personnel or otherwise induce a debtor 's management to remain with the debtor . 
this provision addresses serious conserns and i support the intent of its drafters . 
nevertheless , this provision should not be construed to invalidate all key employee retention programs for companies that may someday wind up in chapter 11 . 
it is very important that a chapter 11 debtor be able to retain management that is dedicated to maintaining the company 's value for the benefit of its creditors , investors , employees , and other stakeholders . 
all too often , companies that fail to reorganize successfully are converted to chapter 7 for liquidation , where creditors receive pennies on the dollar and employees face job dislocation . 
where appropriate , key employee retention programs may be necessary to bring a company in financial distress successfully through the chapter 11 process . 
accordingly , section 331 of s. 256 should not be applied to invalidate such programs where there is no evidence of insider negligence , mismanagement , or fraudulent conduct contributed to a company 's insolvency -- in whole or in part . 
given the possibility that the intent of the congress with respect to this provision and the interpretation of section 331 's text may not be consistent , legislation clarifying language may be necessary . 
if so , i will work with my colleagues in the house and senate to address any such inconsistencies . 
i ask that a letter from the association of insolvency and restructuring advisors be printed at this point in the record . 
association of insolvency , and restructuring advisors , medford , or , march 1 , 2005 . 
dear mr . 
chairman : the undersigned are financial and legal professionals who serve as the board of directors of the association of insolvency and restructuring advisors ( aira ) . 
as board members we work to further the aira 's goal of increasing industry awareness of the organization as an important educational and technical resource for professionals in business turnaround , restructuring , and bankruptcy practice , and of the certified insolvency and restructuring advisor ( cira ) designation as an assurance of expertise in this area . 
we write to make you aware of serious concerns we have regarding a provision contained in s. 256 , the `` bankruptcy abuse prevention and consumer protection act of 2005. '' the provision in question effectively prohibits the use of key employee retention plans in chapter 11 reorganizations . 
it was added during the judiciary committee mark-up of the bill and elicited little attention at the time . 
however , we believe this provision will cause considerable harm to a number of companies that will become subject to bankruptcy proceedings , and , most importantly , to their employees , customers , and creditors . 
when a company is operating in chapter 11 , a primary responsibility of management is to maintain and grow the company 's value for the benefit of all of its stakeholders . 
a company that is well-managed through its restructuring benefits its creditors , employees , retirees , unions and the local communities of which the company is a part . 
companies that fail to successfully reorganize in chapter 11 are liquidated . 
creditors receive pennies on the dollar and employees see their jobs and retirement savings destroyed . 
when companies enter chapter 11 , it is critical that they attract and retain top management talent . 
but chapter 11 is also the most difficult time to attract and retain such talent . 
managers of chapter 11 companies are faced with intense scrutiny , stress , insecurity , and an enormously complex process . 
compensation and incentive tools used by non-bankrupt companies such as equity compensation programs are not available to assist with attracting and retaining the type of management talent necessary to bring the company successfully through the chapter 11 process -- this is because the pre-petition equity is almost always without value . 
key employee retention plans ( `` kerps '' ) have become common practice since the early 1990 's and have been viewed by courts , debtors , and creditors alike as an important and useful way to help reorganization by retaining key employees . 
bankruptcy courts have agreed with this reasoning , and many judges have used their judicial discretion to approve kerps . 
for a court to approve a kerp under existing law , however , a debtor must use proper business judgment in formulating the program , and the court must find the program to be reasonable and fair . 
creditors have the right to object to proposed kerps , and judges are presented with a full evidentiary record upon which to make a determination . 
if a kerp is not appropriate or if it is not in the best interest of the company 's creditors , the judge can refuse to approve it . 
in the last few years , there has been a trend , with which we agree , towards stricter judicial scrutiny of proposed kerps by bankruptcy judges . 
such a trend seems appropriate in the wake of numerous high profile bankruptcy filings where management 's misconduct or mismanagement has led to the chapter 11 filing . 
judges have discretion to deny kerps in these circumstances , and they do so when the facts and circumstances warrant . 
unfortunately , s. 256 as reported by the senate judiciary committee includes an amendment authored by senator edward m. kennedy xz4002142 ( the kennedy amendment ) that places significant limits on retention bonuses and severance payments to employees of companies in chapter 11 . 
it would prohibit a bankruptcy judge from approving retention bonuses in every chapter 11 case unless he or she finds that the company in question has proven that the employee has a bona fide job offer at the same or greater rate of compensation ; was prepared to accept the job offer ; and the services of that employee are `` essential to the survival of the business. '' the amendment also places significant caps on the amount of such bonus and payments . 
the kennedy amendment appears to be motivated by a desire to combat kerps in chapter 11 cases where employee-related fraud substantially contributed to the bankruptcy of the company . 
yet , by painting with such a broad brush , the kennedy amendment will , if enacted , effectively eliminate all companies ' ability to ever receive court approval for a kerp . 
federal bankruptcy judges would have little or no discretion to approve kerps . 
in turn , bankrupt companies would have less flexibility in trying to retain or attract necessary employees . 
this result will cause considerable harm to companies in bankruptcy , their employees , and their creditors . 
it is apparent that the kennedy amendment is designed to prevent abuses of the system , where creditors ' , employees ' and retirees ' monies are unnecessarily expended for the enrichment of management . 
whether there currently is or is not sufficient judicial scrutiny of kerps is a valid question , insofar as the overall bankruptcy system allows debtors a fair amount of flexibility in exercising reasonable judgment -- but there must be an approach better than handcuffing the judiciary and stakeholders in bankruptcy cases by essentially precluding all use kerps . 
the proper use of kerps requires an analysis of all facts and circumstances of the case , and not what is essentially a blanket proscription of these tools . 
senator kennedy has advanced an important public policy discussion with his amendment . 
managers who have had responsibility for driving a company into bankruptcy should not be paid a bonus to remain . 
similarly , if the retention of an employee would not enhance a company 's value for its stakeholders , they should not be paid a bonus to stay . 
current law provides bankruptcy judges with the discretion necessary to deny a kerp in such circumstances and bankruptcy judges do deny kerp payments in these circumstances . 
still , if the congress wishes to improve the operation of current law while still safeguarding the ability of the courts to approve legitimate kerps , we would welcome a discussion on how best to achieve that end . 
unfortunately , s. 256 , as reported by the committee , goes too far and should be amended so as not to unnecessarily limit the bankruptcy court 's ability to determine what is in the best interest of each individual bankruptcy estate . 
mr. chairman , we thank you for considering our views on this important matter . 
we would be pleased to address any questions you or other members of the committee on the judiciary may have . 
sincerely , the members of the board and management of the association of insolvency and restructuring advisors . 
soneet r. kapila , cira , kapila & amp ; company ; president , aira . 
james m. lukenda , cira , huron consulting group ; chairman , aira . 
grant newton , cira , executive director , aira . 
daniel armel , cira , baymark strategies llc . 
dennis bean , cira , dennis bean & amp ; company . 
francis g. conrad , cira , arg capital partners llp . 
stephen darr , cira , mesirow financial consulting llc . 
louis dearias , cira , pricewaterhousecoopers llp . 
james decker , cira , houlihan lokey howard & amp ; zukin . 
mitchell drucker , cit business credit . 
howard fielstein , cira , margolin winer & amp ; evens llp . 
philip gund , cir , marotta gund budd & amp ; dzera ll . 
gina gutzeit , fti palladium partners . 
alan holtz , cira , giuliani capital advisors llc . 
margaret hunter , cira , protiviti inc . 
alan jacobs , cira , amj advisors llc . 
david judd , neilson elggren llp . 
bernard katz , cira , jh cohn llp . 
farley lee , cira , deloitte . 
kenneth lefoldt , cira , lefoldt & amp ; company . 
william lenhart , cira , bdo seidman llp . 
kenneth malek , cira , navigant consulting inc . 
j. robert medlin , cira , fti consulting inc . 
thomas morrow , cira , alixpartners llc . 
michael murphy , mesirow financial consulting llc . 
steven panagos cira , kroll zolfo cooper llc . 
david payne , cira , d r payne & amp ; associates inc . 
david ringer , cira , eisner llp . 
anthony sasso , cira , deloitte . 
matthew schwartz , cira , bederson & amp ; company llp . 
keith shapiro , esq. , greenberg traurig llp . 
grant stein , esq. , alston & amp ; bird llp . 
peter stenger , cira , stout risius ross inc . 
michael straneva , cira , ernst & amp ; young llp . 
mr. speaker , i urge again the adoption of s. 256 . 
