Report of the Individual Debtor Committee

National Bankruptcy Conference 2008 Mid-Year Meeting Mayflower Hotel – Washington D.C. March 13, 2008

A. Attendance Members Present: Donald Bernstein (Chair), Richard Levin (Vice Chair), K. John Shaffer (Secretary), Douglas Baird, R. Neal Batson, Michael St. Patrick Baxter, Richard Broude, Leif Clark, S. Elizabeth Gibson, Daniel Glosband, Marcia Goldstein, Robert Greenfield, Allan Gropper, Nell Hennessy, Barbara Houser, Marshall Huebner, Melissa Jacoby, Carl Jenks, Kenneth Klee, David Lander, Jonathan Landers, Joe Lee, E. Bruce Leonard, Marc Levinson, Keith Lundin, Ralph Mabey, Herbert Minkel, Jeffrey Morris, Gerald Munitz, Sally Neely, Hal Novikoff, Isaac Pachulski, Alan Resnick, Raymond Shapiro, A. Thomas Small, Edwin Smith, Gerald Smith, Henry Sommer, Richard Toder, Jane Vris, Eugene Wedoff, and Robert White. Emeritus Members Present: Murray Drabkin. Other Persons In Attendance Included: Suzanne Bingham (Executive Assistant for the Conference)

B. Welcome Chair Bernstein opened the meeting at 9:00 a.m. by welcoming the Conferees in attendance. The Chair reported that a delegation of the Conference had meetings with various representatives of members of Congress on March 12 (the day prior to the Mid- Year Meeting).1 The meetings were arranged Conferee Neely, and the principal focus 1 The meetings were with (1) Susan Jensen, Majority Counsel, House Judiciary Committee (for Representative John Conyers, Jr. (D. MI), Chair, Judiciary Committee); (2) Nathan J. Hallford, Legislative Counsel, Subcommittee on Admin. Oversight and the Courts (for Senator Jeff Sessions (R. AL), Ranking Member, Subcommittee on Admin. Oversight and the Courts); (3) Ivy Johnson, Chief Civil Counsel, Senate Judiciary Committee (for Senator Alan Specter (R. PA), Ranking Member, Judiciary Committee); (4) MaryEllen McGuire, Staff Director, and Patrick C. Grant, Legislative Assistant, Health Education Labor & Pensions Committee (for Senator Chris Dodd (D. CT)); (5) Bharara Preet, Chief Counsel, and Elliot Williams, Counsel, Subcommittee on Admin. Oversight and the Courts (for Senator Charles Schumer (D. NY) Chair, Courts Subcommittee); (6) Matthew Virkstis, Counsel, Senate Judiciary Committee (for Senator Patrick Leahy (D. VT), Chair, Judiciary Committee); (7) David M. Stetson, Counsel, Subcommittee (of Judiciary Committee) on Terrorism, Technology & Homeland Security (for Senator Dianne Feinstein (D. CA)); and (8) Daniel C. Swanson, Counsel, Senate Judiciary Committee (for Senator Richard Durbin (D. IL), Asst. Majority Leader). was on the pending mortgage relief legislation and the availability of the Conference to assist with analysis and drafting. The Chair reported that staff has been appreciative of the drafting comments that the Conference has provided on the pending legislation, and that some of the comments have been reflected in the legislative drafting. Moreover, it is clear there are significant concerns about the economy generally. The Chair announced that the Representative Linda Sanchez (D. CA), Chair of the House Judiciary Committee on Commercial and Administrative Law, would not be able to address the Conference at the Mid-Year Meeting (as had been on the original agenda), and thus a revised meeting agenda was being circulated.

C. Report Of The Committee On Legislation

1. Introduction

Conferee Neely led the report of the Committee on Legislation. She began by expressing the Committee's gratitude to the Conferees who have assisted the Committee's work by responding to drafting and informational requests (noting, in particular, the extraordinary contributions of Conferee Lander and Wedoff, and the Individual Debtor Committee generally).

Conferee Neely noted that a number of the Committee's legislative projects have been confidential, at the request of members of Congress or their staff. The Chair noted that, when the Committee responds to a confidential request of this nature, it is careful to make clear that the entire Conference has not had an opportunity to consider the response.

In terms of the Legislative Committee's public work, its efforts since the 2007 Annual Meeting have been focused primarily on proposed legislation to (1) reverse the effect of BAPCPA on the dischargeability of certain student loans, and (2) provide home mortgage relief in chapter 13. The Conference continues to be regarded well on Capitol Hill, and has in particular begun to develop new relationships with Senate staff.

2. Dischargeability Of Student Loans The Conference learned that Representative Conyers (D. MI) was trying to include in the College Opportunity and Affordability Act of 2007 (H.R. 4137) a provision that would have repealed the BAPCPA amendment to section 523(a)(8). The Conference sent a letter to Representative Conyers on February 6, 2008 in support of his efforts. Unfortunately, the Act was passed by the House on February 7 without any provision dealing with the student loan issue.

The Conference also provided a report to a Congressional staff person showing that nondischargeability had only a slight impact on the availability of student loans. This was a new contact on the Hill for the Conference. [Note that student loan

2 dischargeability issues were discussed further in connection with the Individual Debtor Committee's Report, infra]

3. Home Mortgage Relief Conferee Neely reported that the Conference continues to analyze and comment upon home mortgage relief proposals at a very quick pace. Among other things, (i) Vice Chair Levin testified on this issue on October 30, 2007, before the House Subcommittee on Commercial and Administrative Law, and (ii) the Conference sent a letter on December 12, 2007, to Representatives Conyers (D. MI), Linda Sanchez (D. CA), Cannon (R. UT), and Smith (R. TX) in support of allowing debtors to modify their home mortgages in chapter 13. The Conference's letter has been circulated on the Hill and has led to a number of new contacts between staff members and the Conference.

The current status of the mortgage relief legislation in the House is reflected in a compromise proposal that was made by Chairman Conyers and Representative Chabot (R. OH). This proposal, which has been posted on the House Judiciary Committee website (as the Conyers-Chabot Compromise or Substitute Amendment), would narrow the scope of mortgage relief in chapter 13 from that originally proposed in Representative Miller's bill (HR 3609).

On the Senate side, the Senate Judiciary Committee will be marking up Senator Durbin's mortgage relief bill (S 2136). In connection with this, the Conference has developed new contacts with Senator Feinstein's (D. CA) staff.

Financial institutions and the White House continue to oppose efforts to allow for nonconsensual mortgage modifications in chapter 13.

A discussion followed about the prospects for mortgage relief legislation, and in particular whether the legislation could apply to individual chapter 11 cases as well. However, the Chair and Conferee Neely both noted that the scope of relief is being narrowed in the legislative proposals, so the Conference's focus is to obtain the broadest relief that is possible in the current political climate.

[Note that home mortgage relief issues were discussed further in connection with the Individual Debtor Committee's Report, infra]

4. Other Legislative Matters The Conference continues to receive requests for input on various other matters, including from Susan Jensen (Majority Counsel, House Judiciary Committee). Among other things, the Conference was asked to comment on legislation that will provide a short-term exclusion from income debt that is forgiven as a result of a mortgage foreclosure or renegotiation (H.R. 3648). The legislation, however, was passed before the Conference could comment.

3 Chairman Frank (D. MA) also asked for the Conference's assistance with respect to a proposal that tax rebates included in the Economic Stimulus Act of 2008 (H.R. 5140) not be included in the property of a debtor's bankruptcy estate (the Act passed without that provision).

The Conference has responded to requests for input regarding the Medical Bankruptcy Fairness Act of 2008 (H.R. 5138).

D. Report Of The Committee On International Aspects

Conferee Leonard introduced the report of the Committee on International Aspects. He specially noted the inclusion in the Committee's report of an amicus brief prepared by Conferees Westbrook, Glosband, and Klee in the Bear Stearns High-Grade Structured Credit Strategies Master Fund case (which brief argued that the court in that case should not recognize under chapter 15 a foreign proceeding commenced in the Cayman Islands with respect to the debtor, on the grounds that the Cayman Islands had no substantial connection with the debtor).

1. Abstention And Issues Concerning Section 305 – Effect Of BAPCPA Amendments

Conferee Glosband reported on the Committee's view that section 305, as amended by BAPCPA, makes dismissal of cases filed in the United States unnecessarily difficult in situations involving debtors that have their center of main interests (COMI) outside the United States. Specifically, BAPCPA amended section 305(a)(2) by changing the basis for dismissal or suspension from:

there being a foreign proceeding pending and the existence of the factors set forth in section 304(c) to

there being a petition for recognition under section 1515 that has been granted, and the purposes of chapter 15 would be served by dismissal or suspension.

In other words, section 305(a)(2) now applies only once a petition for recognition has been granted. This means that, in cases in which recognition has not occurred, the court can dismiss or suspend based only upon section 305(a)(1) (the "interests of creditors and the debtor" test), or perhaps under section 1112. Conferee Glosband noted that, by being limited to the "interests" test in section 305(a)(1), the court in Compania de Alimentos Fargo, S.A., 376 B.R. 427 (Bankr. S.D.N.Y. 2007), had to go to great lengths to dismiss a case that otherwise could have been fairly easily dismissed under pre-BAPCPA section 305(a)(2). He also noted that similar problems arose in the Yukos and Cenargo cases.

4 Conferee Glosband discussed the Committee's proposal to add a new section 305(a)(3), which would allow for dismissal or suspension if (i) the debtor's center of main interests is not in the United States, and (ii) the U.S. court does not have jurisdiction over the debtor's principal assets. Dismissal or suspension would be discretionary under this provision.

A discussion of the proposal followed, in which Conferees discussed, among other things, (i) whether the existing (a)(1) standard was indeed too difficult, or whether it created difficulties in determining how to balance different creditors' "interests," (ii) whether post-BAPCPA section 305 could be modified to eliminate the requirement of a recognized foreign proceeding (thus just focusing on "the purposes of chapter 15"), and (iii) whether improvements could be made by altering the eligibility requirements in section 109 for foreign debtors.

The issue was sent back to the Committee on International Aspects for further consideration.

2. Whether A Foreign Representative Can Act Prior To Recognition

Conferee Glosband led a discussion of apparent statutory inconsistencies as to whether a foreign representative must be recognized prior to taking actions under the Bankruptcy Code. He noted an ambiguity arose in the Bear Stearns case. Specifically, section 303 provides that a foreign representative can file a petition (without reference to recognition), while section 1511 says that a foreign representative can file a petition "[u]pon recognition." He also noted that, as previously discussed, abstention or suspension under section 305(a)(2)(A) requires a granted petition for recognition, while the coordination and cooperation provisions in chapter 15 (section 1529) do not require recognition.

The Committee on International Aspects proposed that a foreign representative should always be required to seek recognition under chapter 15 in order to take other actions under the Bankruptcy Code. In other words, recognition under chapter 15 should be the entry point.

A discussion followed regarding the Committee's proposal. Following the discussion, the Chair referred the issue to the Drafting Committee to deal with the apparent inconsistency in the recognition requirements between sections 303 and 1511.

3. Application Of U.S. Securities Laws To The Restructuring Of Foreign Debt

Conferee Gropper led a discussion of whether U.S. securities laws should be amended to be more favorable for out of court restructurings, particularly those

5 involving foreign debt. He noted that while many foreign issuances of securities fall within exemptions to the U.S. securities laws, over time those securities may end up in the hands of U.S. investors, with respect to whom the exemptions do not apply. Thus, in order to effectively restructure those securities, it may be necessary to file a chapter 11 case in the U.S. in order to take advantage of Bankruptcy Code section 1145.

Conferee Gropper focused principally on two provisions in the Securities Act of 1933 – section 3(a)(9), which provides an exemption from the securities laws for exchanges of securities by the same issuer "where no commission or other remuneration is paid or given directly or indirectly for soliciting such exchange," and section 3(a)(10), which provides an exemption for exchanges when a "fairness" determination has been made by a court "or other governmental authority expressly authorized by law to grant such approval." With respect to section 3(a)(9), Conferee Gropper noted that there is uncertainty as to whether an affiliate or, in the case of a foreign restructuring, the successor entity would qualify as the same issuer. There is even more uncertainty as to what is prohibited by the "no commission" requirement, and as to what purpose that requirement serves. A discussion followed as to whether the no commission requirement does, in fact, interfere with the ability to consummate out of court restructurings. With respect to section 3(a)(10), the discussion centered on whether a foreign insolvency proceeding can provide the "fairness" determination required by the statute.

The Chair requested that the Committee conduct a survey to determine whether the no commission provision in section 3(a)(9) is in fact hindering out of court restructurings. The Committee should propose one or two questions to circulate to the entire Conference for the survey.

4. Venue – Rule 1014

Conferee Broude led a discussion of potential venue problems in chapter 15 cases caused by the fact that a case involving a debtor under chapters 7 or 11 may be commenced in a different district than that in which a chapter 15 petition has been filed. As currently drafted, Bankruptcy Rule 1014(b) does not clearly address this situation.

The Committee proposed that Rule 1014(b) be amended (or a new rule be drafted) to deal with a situation in which a chapter 15 case is filed in one district, and a plenary case under another chapter of the Code is filed in another district. The amendment or new rule would expressly provide for the transfer of venue in those situations so that both cases may proceed in a single district.

A motion was made to adopt the Committee's proposal, which was seconded and approved. Conferee Broude will draft a letter to the Bankruptcy Rules Committee on behalf of the Conference, setting forth this recommended rules change.

6 5. Venue Of Cases Filed After Recognition

Conferee Glosband introduced the Committee's recommendation that venue of a title 11 case commenced after recognition of a foreign representative be limited to the court where recognition was granted. The Committee proposed amending 28 U.S.C. § 1410 by adding a new subsection (b) that would read:

A case commenced by a foreign representative pursuant to section 1511 of Title 11 may be commenced only in the District that has entered an order recognizing the foreign proceedings.

The Committee also proposed eliminating the notice requirements in subsection (b) of section 1511.

A discussion followed, including with respect to the merits of the proposal in general, and also as to whether the reference to "the District" in proposed section 1410(b) should be changed to "a District," because it may be possible for recognition to occur in multiple districts (although that is uncertain). No consensus was reached.

At the Chair's suggestion, the Committee will present language for a proposed legislative amendment at the Annual Meeting.

6. Residual Equity Jurisdiction

Conferee Glosband noted that, while section 1529 provides for cooperation with a foreign representative regardless of whether the representative has been recognized, the foreign representative's standing is unclear prior to recognition. In general, the drafters of chapter 15 intended for recognition to be the sole entry point into the U.S. courts. Absent recognition, is a foreign representative simply a "party in interest" (like the SEC)? The Committee intends to propose some specific amendments to provide foreign representatives with standing notwithstanding a lack of recognition. Conferee Klee, however, raised concerns whether a foreign representative should be allowed to be heard and effectively get the benefits of chapter 15, without accepting the burdens of chapter 15 as well. For example, concerns were raised as to whether an unrecognized foreign representative should be allowed to obtain injunctive relief. The Committee will present language for a proposed legislative amendment at the Annual Meeting.

7 7. Chapter 15 And Center Of Main Interests (COMI) Issues

Conferee Glosband began the discussion of the Committee's report on Center of Main Interests ("COMI") issues. COMI is central to the application of chapter 15, because a foreign proceeding generally will be a "main" proceeding if the proceeding is pending where a debtor's COMI is, while it will be a "nonmain" proceeding if it is not. Section 1516(c) provides that "[i]n the absence of evidence to the contrary, the debtor's registered office, or habitual residence in the case of an individual, is presumed to be the center of the debtor's main interests."

Conferee Glosband briefly discussed four cases involving recognition and "haven" jurisdictions – jurisdictions that technically may satisfy the presumption as to the debtor's COMI, but in which the debtor has little or no assets or operations. The cases were In re SPhinX, Ltd., 351 B.R. 103 (Bankr. S.D.N.Y. 2006), aff’d 371 B.R. 10 (S.D.N.Y. 2007); In re Tri-Continental Exchange, Ltd., 349 B.R. 627 (Bankr. E.D. Cal. 2006); In re Bear Stearns High-Grade Structured Credit Strategies Enhanced Leverage Master Fund, Ltd., 374 B.R. 122 (Bankr. S.D.N.Y. 2007); and In re Basis Yield Alpha Fund (Master), 2007 WL 4723319 (Bankr. S.D.N.Y. 2008). Conferee Glosband noted that he and Conferees Klee and Westbrook had filed an amicus brief in the Bear Stearns case appeal to the District Court, in which they supported Judge Lifland's decision not to recognize a Cayman Islands proceeding as a foreign main proceeding, notwithstanding the fact that the debtor's registered office was in the Caymans.

Conferee Mabey then led a discussion of corporate group issues relating to COMI. In In Re DaisyTek-ISA Ltd. [2003] B.C.C. 562 (ch), the U.K. court held that the COMI for a parent company should also be the COMI for subsidiaries for which the parent company exercised the "head office" functions. UNCITRAL is meeting to discuss the implications of DaisyTek and what it refers to as "enterprise groups" generally.

Chair Bernstein noted that U.S. venue rules provide that cases for all affiliated debtors should proceed in the same court. However, the U.S. Bankruptcy Code applies uniformly throughout the country, so a change of venue does not mean a change in substantive law. By contrast, changing venue from one country's courts to another could have a significant effect on substantive rights (including, for example, perfection of security interests). Thus, international venue issues have significant forum shopping implications. One solution that was suggested would be to have all proceedings relating to a single enterprise group pending in a single court, but having that court apply different law in each proceeding depending upon where the debtor was located.

Chair Bernstein requested that the Committee on International Aspects form a subcommittee to identify venue-related issues, and then to provide input and assistance to UNCITRAL and other relevant NGO's (non-governmental organizations).

8 E. Chapter 11 Report

1. Crossover Voting And Section 1126(e) Vote Designation

Conferee Pachulski led the discussion of the Chapter 11 Committee's report on "crossover" voting issues and vote designation. The issue was whether a creditor should be allowed to affect the acceptance or nonacceptance of a particular class, based upon economic or other motivations that differ (or even conflict with) those of other members of the class. The Committee's report proposed two possible approaches to the issue, one narrow, and one broad. In summary, the two approaches were as follows: Narrower approach: Amend section 1126(e) to include as another basis for vote designation whether the holder of the claim or interest has, "by reason of any direct or indirect claim against or interest in the debtor or an affiliate of the debtor, an interest that is both (I) adverse to the interest of the class of claims or interests to which such acceptance or rejection relates and (II) of greater importance and economic value to such holder than its claim or interest in such class." Broader approach: Amend section 1126(e) to include as another basis for vote designation whether the holder of the claim or interest has "a conflict of interest that is of such nature as would justify exclusion of such entity's claim or interest from" considering whether the class has accepted or rejected the plan.

A discussion of the proposals followed. A number of Conferees expressed their views that courts should have greater authority to designate votes based upon potential conflicts and that case law developed in the "single asset" context may not necessarily achieve the best result in other cases. However, there was also a contrary view expressed that the rules in chapter 11 should be no different than those for voting of securities generally under nonbankruptcy laws. Specific concerns also were raised as to whether the "importance" of a conflicting interest could be measured beyond its actual economic effect.

The issue was referred back to the Chapter 11 Committee for further consideration. It was suggested that Conferees Minkel, Klee, and others with particular interest in this matter provide to the Committee hypothetical fact patterns that may arise in the section 1126(e) context, along with recommendations as to whether such fact patterns should, or should not, result in vote designation. Based upon this input, the Chapter 11 Committee should report back at the Annual Meeting. The Chapter 11 Committee also should send out an email encouraging Conferees to provide their input.

9 2. Possible Amendments To Rule 2019

Conferee Pachulski continued the Chapter 11 Committee's report by turning to the issue of what disclosures should be required with respect to differing or conflicting interests, whether in connection with voting, participating on a committee, or otherwise. He began by noting a number of potential problems with Rule 2019 as it is currently drafted, including: (1) ambiguities in the rule, including (a) whether disclosures must be with respect to the members of the committee itself, or with respect to the entity that represents the members, and (b) when does a "group" of creditors rise to the level of a "committee" that must comply with Rule 2019, see In re Northwest Airlines Corp., 363 B.R. 704 (Bankr. S.D.N.Y. 2007); (2) whether Rule 2019 should apply to two or more totally unrelated creditors who happen to be represented by the same law firm in the case; (3) whether Rule 2019 should require creditors to disclose what they paid for their claims in all cases, or whether that requirement should be limited to when the price is relevant to some other issue in the case; (4) whether Rule 2019 should be made broader to require disclosure of indirect economic claims and interests, including pledges, options, derivatives, and claims against affiliates; and (5) whether every creditor in the case should be required to make Rule 2019-type disclosures before filing any pleading or voting in a case. The Committee's report proposed two possible approaches, one narrow, and one broad. Narrower approach: Amend Rule 2019 to add a new subsection (a)(2), which would require disclosures by official statutory committees under sections 1102 and 1114 of (A) the name and address of each committee member, and (B) the nature and amounts of the claims or interests held by each member of the committee, the time of acquisition thereof (unless more than one year before filing), the amounts paid therefore, and any sales or dispositions thereof. Broader approach: Make substantial amendments throughout Rule 2019, including (1) applying the rule to official committees appointed under sections 1102 and 1114, (2) requiring disclosure of indirect economic claims or interests, including pledges, liens, options, and other rights or derivative rights, and (3) requiring disclosure of claims against or interests in affiliates of the debtor. The amendments also could potentially include eliminating certain requirements in Rule 2019, including the requirement of disclosing the price paid for claims. Finally, the amendments would clarify various ambiguities that currently exist in Rule 2019.

Conferee Gibson noted that the Judicial Conference's Advisory Committee on the Federal Rules of Bankruptcy Procedure is considering a request by the Loan Syndications and Trading Association ("LSTA") to repeal Rule 2019 altogether. Various Conferees agreed that Rule 2019 issues had taken on significant importance in light of the Northwest decision, and that the Conference should have a position on the issue.

The Chair announced that the Conference would devote significant time to Rule 2019 and related disclosure issues at the Annual Meeting, based upon

10 the Chapter 11 Committee's report. The Chapter 11 Committee does not need to do anything more with respect to Rule 2019 until then.

F. Report Of The Committee On The Capital Markets And The UCC

Conferee Ed Smith introduced the report of the Capital Markets Committee. At the 2007 Annual Meeting, the Conference had asked the Committee to consider possible amendments to the financial contract "safe harbor" provisions of the Bankruptcy Code, in order to address possible areas in which those provisions might be viewed to apply to ordinary commercial transactions. This has been an enormous task for the Committee, because it has had to balance the need to maintain certainty in the financial markets (and Congress' desire to do the same), while at the same time craft specific rules that limit the application of the financial contract provisions. Because of the certainty issue, the Committee believed that any proposed amendments needed to be specific in nature.

1. Collateral Securing Financial Contracts

As currently drafted, the financial contract provisions appear to exempt from the automatic stay the exercise of remedies vis-à-vis any collateral that secures a financial contract. This would include non-financial assets of the debtor, including inventory, equipment, receivables, intellectual property, or real estate.

The Committee proposed various amendments to limit the application of the financial contract provisions to only financial collateral, including a new definition of "financial collateral."

Conferee Smith led a discussion regarding the proposed "financial collateral" definition. Some Conferees expressed concern that the proposed definition was too broad, particularly with respect to cash that might be derived from the debtor's non-financial assets postpetition (for example, cash that is generated from the collection of receivables).

The Committee will take the Conference's discussion into account and make a specific proposal at the Annual Meeting.

2. Settlement Payments

Conferee Smith referred the Conference to a March 17, 2003 memorandum from the Conference's Capital Markets Task Force, Section 546(e) Subcommittee. The memorandum proposed certain statutory amendments that would relate to section 546(e), which exempts all settlement payments from avoidance (except for intentional fraudulent conveyances that are avoidable under section 548(a)(1)(A)). As discussed in the memorandum, a growing body of case law was relying upon section

11 546(e) to exempt from avoidance payments to shareholders in transactions such as leveraged buyouts (this case law has expanded further since 2003). The memorandum proposed statutory amendments that would carve out such payments from the section 546(e) exemption, specifically by:

a) Amending section 546(e) by adding a new subsection (2), which would carve out from the 546(e) exemption "a transfer which is otherwise avoidable under sections 544, 545, 547, 548(a)(1)(B) or 548(b) of this title to the extent such transfer is a redemption payment, principal payment, dividend payment, interest payment or other distribution on or in respect of a security made for the benefit of the beneficial holder of the security by or on behalf of the issuer of the security or another entity obligated with respect to the security" [this would be in addition to the existing section 548(a)(1)(A) carve out, which would become paragraph (1)]; and

b) Adding a new section 550(g), which would provide that, "The trustee may not recover any transfer of a kind described in section 546(e)(2) except from (1) the entity that is the beneficial holder of the security on or in respect of which such transfer is made but only to the extent that such entity actually received such transfer or (2) any entity that holds such transfer for the benefit of the beneficial holder but only to the extent such entity has actually received and retained such transfer."

The foregoing statutory amendments had been endorsed by the Conference in 2003.

A motion was made to reaffirm the vote the Conference took on the 2003 proposal. The motion was seconded and approved unanimously. The Capital Markets Committee and the Drafting Committee will update the language of the proposal to reflect the intervening statutory changes and report back to the Conference with specific statutory language at the Annual Meeting.

3. Carve-Out For Intentional Transfers

The section 546(e) exemption carves out intentionally fraudulent transfers that are avoidable under section 548(a)(1)(A), but it does not carve out intentionally fraudulent transfers that are avoidable under applicable nonbankruptcy law pursuant to section 544(b). The Committee recommended that section 546(e) be amended to carve out intentionally fraudulent transfers under both 548(a)(1)(A) and 544(b).

The consensus of the Conference was that Committee should proceed with its recommendation and draft specific language that would amend section 546(e) to carve out intentionally fraudulent transfers under both 548(a)(1)(A) and 544(b). The Committee will propose this language at the Annual Meeting.

12 4. Future Work

Conferee Smith reported that the Capital Markets Committee is continuing to look into other areas that are affected by the financial contract provisions in the Code, including whether repurchase agreements could be recharacterized as loans, and whether ordinary supply contracts could fall under the safe harbors for forward contracts.

The Committee will report back to the Conference at the Annual Meeting with respect to these matters.

G. Resolution to Honor Barney Shapiro

Conferee Minkel led the discussion of a resolution to honor Barney Shapiro, who had chaired the Conference from 1992 through 1997.

A motion was made to approve the resolution in the form attached to these minutes, which motion was seconded and approved.

H. Emeriti Telephonic Participation In Meetings

The consensus of the Conference was that emeriti should be allowed to participate in Conference meetings in a nonvoting capacity by telephone.

I. Annual Meeting

The Chair announced that the Annual Meeting will take place October 23 and 24, 2008, in Washington D.C. The meeting tentatively is scheduled to be at the offices of the Sidley firm, but the Chair will explore the possibility of having the meeting at the Mayflower Hotel.

J. Posting Of Ancillary Meeting Materials

The Chair noted the request of some Conferees that, when sources are referred to in Committee reports (articles, unpublished decisions, etc.), it would be useful if the Committee could post copies of the sources on the members section of the Conference's website.

13 K. Report of the Individual Debtor Committee

Conferee Lander introduced the report of the Individual Debtor Committee. He encouraged the Conference's Membership Committee to consider the nomination of more attorneys who practice in the area of consumer bankruptcy to the Conference (both on the debtor and creditor side).

1. Proposed United States Trustee Regulations Governing Pre- Bankruptcy Briefings Under Section 109(h)

Conferee Lundin led a discussion of regulations proposed by the Executive Office of the United States Trustee to implement the pre-bankruptcy "briefing" requirements of section 109(h).2 The Committee believed that the proposed regulations would impose requirements that exceeded those provided for in the statute, including mandating "credit counseling" and budget analysis services, rather than simply the group or individual briefing described in section 109(h). Conferees expressed concerns that, rather than promoting the laudable goal of debtor education, the proposed regulations would impose further costs, delays, and other barriers to entry for individual debtors. Concern also was raised about a minimum, sixty-minute requirement that was not contained in the statute.

A motion was made to authorize the Committee to draft a letter, on behalf of the Conference, opposing the proposed regulation as being inconsistent with section 109(h). The letter may also mention the Conference's disagreement with the proposed, sixty minute requirement, but that would not be the letter's principal focus. The motion was seconded and approved without dissent. [Secretary's Note: The letter was sent by the Conference on March 30, 2008]

2. Dischargeability Of Student Loans

Conferee Lander led a discussion of the dischargeability of student loans in the wake of BAPCPA (section 523(a)(8)). The Committee recommended that the limitations on dischargeability be rolled back significantly, so that:

(a) nondischargeability be limited to government loans, or to that portion of the loan that is provided or guaranteed by the government; (b) nondischargeability be limited to the first five years after the first payment was due; and (c) bankruptcy judges have express, statutory authority to authorize a partial discharge when appropriate.

2 See Docket No. EOUST 102 – "Application Procedures And Criteria For Approval Of Nonprofit Budget And Credit Counseling Agencies By United States Trustees" (proposed by the Executive Office of the United States Trustee to become part 58 of chapter I of title 28 of the Code of Federal Regulations).

14 Although many Conferees were supportive of the Committee's proposal generally, some concerns were expressed by Conferees about the five-year limitation, including (i) whether it would discourage lenders from granting voluntary deferrals, and (ii) whether it would create uncertainties as to when a particular obligation was discharged.

The Committee will propose specific statutory language for consideration at the Annual Meeting.

3. Proposed Revisions to Section 5 of HR 3609

Conferee Wedoff led a discussion of Section 5 of HR 3609, the "Emergency Home Ownership and Mortgage Equity Protection Act of 2007." Section 5 would amend chapter 13 by limiting mortgage-related fees that would have to be provided for under a plan. The amendment also would, among other things, require the mortgagee to give notice of those fees.

The Committee proposed various amendments to Section 5, including (1) clarifying which fees are subject to the provision (any fee "that arises in connection with a security interest in the debtor's principal residence"); (2) requiring service of the requisite notice on the debtor and the trustee, (3) deleting the time periods set forth in the proposed legislation for filing the notice (leaving it instead to the Bankruptcy Rules Committee to set the periods), (4) eliminating any reference to the debtor's equity in the property for determining whether fees should be payable, and (5) providing that the notice requirements would not apply for periods after the automatic stay had been terminated.

The Conferees discussed various issues relating to the proposal, including whether the proposed legislation should apply to individuals in chapter 11, and whether the fact that the automatic stay is not in effect should have any bearing on the provision's applicability. The Conferees also discussed whether the Conference should provide some guidance to the Bankruptcy Rules Committee regarding the applicable time periods.

Conferee Klee moved to adopt the Committee's recommendation, with two changes – (1) that the amendments also apply in chapter 11 (specifically, by amending sections 1123(b)(5) and 1141), and (2) that in those cases in which the debtor does not obtain the benefit of the automatic stay until the court so orders, the relief be retroactive to the commencement of the case. The motion was seconded and approved with two dissents.

The Chair noted that the Conference would leave for the Committee to decide the question whether any proposal should include recommended time limits, not that would be included in the statute itself, but rather which could be adopted by the Bankruptcy Rules Committee in the future.

15 4. Shared Appreciation During Plan Period

In connection with the ongoing political debate over whether a chapter 13 debtor should be permitted to restructure the mortgage on the debtor's primary residence without the lender's consent, some have suggested that, if the principal amount of the lender's mortgage is stripped down to the fair market value of the residence at confirmation, the lender should be entitled to receive some, or all, of the post- confirmation appreciation in the event that the debtor sells the residence or refinances the mortgage.

Conferee Lander led the discussion of the Individual Debtor Committee's report on this issue. The Committee sought to determine whether the Conference would support permitting a lender to receive some (or all) of the post-confirmation appreciation, if it was necessary to otherwise achieve the passage of mortgage relief legislation.

Conferee Lander outlined the following recommendation of the Committee to the Conference:

If necessary to achieve passage of mortgage relief legislation, a lender whose lien on a principal residence has been reduced to fair market value should be allowed to share in some of the benefit of future appreciation of the residence, provided that:

(1) any sharing mechanism be made as simple as possible, so that it does not create the same amount of confusion as section 1111(b) has in chapter 11 cases; (2) The period in which the lender is permitted to share in appreciation should be limited in duration (perhaps five years to coincide with the length of a chapter 13 plan); (3) There should be equal sharing of the appreciation between the lender and the debtor, with the debtor possibly receiving the benefit of any improvements it makes to the property; (4) The appreciation owed to the lender should be payable only upon a refinance or sale during the applicable period; and (5) The maximum amount of appreciation the lender could receive would be equal to the amount of the strip down at confirmation.

Conferee Sommer noted that a version of the Durbin bill (S. 2136) currently circulating included a compromise proposal that a stripped down lender receive all of the appreciation, up to the amount of the strip down, before the debtor receive any benefit from the appreciation.

Vice Chair Levin further noted that it became clear during the March 12, 2008 visit to Capitol Hill by the Conference's delegation that some legislators likely would not accept any legislation that would allow for the reduction of the principal amount of a home mortgage. They might agree to forgive pre-confirmation negative

16 amortization, reduce interest rates, and to extend terms, but forgiveness of actual principal loaned was not acceptable. The Vice Chair noted that these legislators might be willing to accept treatment that is similar to that provided under section 1129(b)(2)(A)(i) (II) in chapter 11 – that is, deferred payments that in the aggregate equal the principal amount owed, but with a present value that is equal to the fair market value of the residence at confirmation.

The Conference discussed the merits of the Committee's recommendation and the alternative approach suggested during the visits with Capitol Hill Republicans.

The consensus of the Conference was to continue to support the Durbin bill. However, in the event that further compromise is necessary, the Committee should further explore section 1111(b) and/or 1129(b)(2)(A)(i)(II) type approaches, including possibly assisting legislative staff in the formulation and drafting of alternatives.

5. Committee To Reassess Individual Bankruptcy

Conferee Wedoff led a discussion of the Third Report of the NBC Committee to Reassess Individual Bankruptcy.

The Report addressed ten potential changes to the current law governing individual bankruptcy cases: (1) whether there should be a single chapter for all individual bankruptcy cases; (2) whether a debtor should be required to devote at least some future income to the repayment of debts in all cases; (3) whether exemptions should be made more uniform throughout the nation; (4) whether any requirement that the debtor devote future income to repayment of debts should take into account the debtor's anticipated expenses, or whether it should be based solely on anticipated income (effectively like a progressive "tax" on the debtor's income); (5) whether the secured amount of a claim should be based solely on the liquidation value of the collateral; (6) whether reaffirmations should be eliminated; (7) whether a discharge should be granted upon court approval of repayment terms, rather than the delayed discharge currently provided for in chapter 13; (8) whether otherwise nondischargeable debts should be discharged after ten years of devoting future disposable income to payments; (9) whether the trustee should pay the debtor's living expenses for one year, and the debtor's own ability to incur debt during that period should be limited; and (10) whether the trustee should play more of an advisory role vis-à-vis the debtor as to budgetary matters.

The second and fourth issues in particular generated significant discussion of the principle of "fresh start," and whether there was any "moral imperative" for debtors to repay debts based upon future income. It was noted that even after BAPCPA, most debtors received the fresh start discharge without devotion of future income, and that the Conference historically had always supported the fresh start principle. There was also a discussion of the impact of predatory lending practices and high interest rates on the

17 "moral imperative" argument. Some Conferences also expressed concerns about the feasibility of the one-year supervision period.

Some Conferees noted that it may not be prudent to propose comprehensive changes to the bankruptcy system in the current political climate, particularly prior to the 2008 elections that could result in significant changes in the positions of the White House and Congress. However, other Conferees noted that the Conference should be proactive in proposing improvements to the bankruptcy system, and that the Conference should continue to explore such improvements because the Conference may be called upon to propose changes (or to comment upon other parties' proposed changes). It was also noted that the Bankruptcy Code may need to adapt to changes in consumer credit practices, and that the Conference should be considering such changes.

A motion was made to adopt the Committee on Individual Bankruptcy's recommendation that a consumer debtor's obligation to repay unsecured debt should be based upon the consumer debtor's future income in all cases. The motion was seconded, but was rejected with 12 Conferees voting in favor of it, and 19 against it.

The Chair noted that the issue could be addressed again at the Annual Meeting, if any Conferee desired to do so, but that the Committee should proceed with the Conference's vote in mind.

A second motion was made that the Committee should continue to explore changes to the existing systems for consumer debtors (chapters 7 and 11). The motion was seconded and approved with two dissents.

L. Adjournment

The Conference's Mid-Year Meeting adjourned at approximately 4:30 p.m.