BUSINESS RESTRUCTURING REVIEW

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1 RECENT DEVELOPMENTS IN BANKRUPTCY AND RESTRUCTURING VOLUME 3 NO. 2 FEBRUARY/MARCH 2004 BUSINESS RESTRUCTURING REVIEW IN THIS ISSUE 1 Conflict of Interest Alone Does Not Warrant Additional Committee A New York bankruptcy court discussed the circumstances under which an additional creditors committee should be appointed to remedy inadequate representation. 3 Limiting Reliance on Conduit Defense in Preference Litigation The Ninth Circuit bankruptcy appellate panel ruled that the conduit defense may be invoked only in a clearly identifi able two-step transaction. 3 Leigslative Update 4 Preference Action Barred to Recover Payments under Assumed Contract The Third Circuit and a New York bankruptcy court reaffirmed the rule that payments made under a contract assumed by the debtor cannot be recovered as preferential transfers. 5 What s New at Jones Day 7 Necessary Modifications to Bargaining Agreement Not Limited to Bare Minimum A New York bankruptcy court held that necessary modifi cations to a collective bargaining agreement are not limited to those alterations essential to prevent liquidation. CONFLICT OF INTEREST ALONE DOES NOT WARRANT ADDITIONAL COMMITTEE Ryan Routh and Mark G. Douglas Among the significant rights granted to creditors under the Bankruptcy Code is the ability to participate meaningfully in a chapter 11 reorganization. Participation can be either individual the statute permits any creditor to voice its opinion concerning any issue arising in a bankruptcy case and to vote on a plan if its claim is impaired or collective. Collective participation most commonly takes the form of official committees of creditors (or shareholders) entrusted with the fiduciary obligation to negotiate with the debtor (with the assistance of professionals) on behalf of the committee s constituency. Where the debtor s capital structure reflects a wide variety of kinds of unsecured creditors, the appointment of a committee can raise a number of important questions: Should only the largest creditors be represented? Must creditors holding different kinds of claims be represented on the committee? Must creditors of various debtors (in jointly administered cases) be represented? What number of committees is appropriate? Some of these issues were recently addressed by a New York bankruptcy court in Mirant Americas Energy Marketing, L.P. v. Official Committee of Unsecured Creditors of Enron Corporation. COMMITTEES IN BANKRUPTCY The Bankruptcy Code provides that the United States trustee, a functionary entrusted with overseeing many of the administrative aspects of a bankruptcy case, shall appoint a committee of unsecured creditors as soon as practicable after a chap-

2 ter 11 case is filed. The appointment customarily takes place at an organizational meeting of creditors convened shortly after the filing date. The committee typically consists of creditors holding the largest unsecured claims against the debtor who volunteer to serve. It is intended to be a representative of the different interests and concerns of the creditors, while serving as a fiduciary of all creditors in its constituency. Committees have the responsibility to protect the interest of the creditors; in essence, the function of a creditors committee is to act as a watchdog on behalf of the larger body of creditors which it represents. Creditors who feel that a committee appointed in the case does not fairly represent their interests are not left without recourse. They may ask the bankruptcy court to appoint additional committees if necessary to assure adequate representation of creditors or equity security holders. The statute does not define adequate representation. Instead, courts look to various factors to make this determination, none of which standing alone is dispositive. These include: The presence of potential conflicts of interest among members of the existing committee and its ability to function. The size, nature and complexity of the case. How far the case has progressed. Added costs. Any delay and disruption caused by the appointment of an additional committee. The desires and standing of various constituencies. Whether a creditors committee adequately represented the interests of a group of disaffected creditors was at issue in Mirant. BACKGROUND Enron Corporation and various subsidiaries, a network of companies engaged in the wholesale and commodity market business, telecommunications and insurance, filed for chapter 11 beginning at the end of At the inception of the cases, the U.S. trustee appointed a single official committee of unsecured creditors for all of the related debtors. A group of creditors (the trading creditors ) holding claims based upon energy trading contracts with three specific debtors (the trading debtors ) requested that the U.S. trustee appoint an additional committee exclusively to represent their interests. They argued that an additional committee was appropriate due to conflicts of interest between and among the various estates involved in the bankruptcy, many of which held intercompany claims. In particular, they contended, because it was in the interests of the other debtors to enrich their own estates by invading the estates of the trading debtors, the resulting conflict of interest prevented the existing committee from fulfilling its fiduciary duties to the various constituencies that it represented. The U.S. trustee denied the request. After the bankruptcy court upheld that determination, the trading creditors appealed to the district court. They fared no better on appeal. According to the district court, while a bankruptcy court must be mindful of a committee s fiduciary duties to the creditor body, the presence of a conflict of interest alone does not warrant the appointment of an additional committee. Committees in nearly every bankruptcy case, the court explained, naturally have a variety of conflicting interests. Even where creditors interests are directly and actually opposed, the court reasoned, a single committee can adequately represent the interests of all creditors. The court then examined the trading creditors request using the factors commonly applied to an adequate representation analysis. Initially, it found that even though the extreme size of the case suggested that multiple committees might be appropriate, the interrelated nature of the debtor s businesses and the complex and entangled relationships among the debtors and creditors suggesting that the debtors operated as a single business enterprise weighed in favor of a single committee. The court also concluded that the interests of the various creditor groups were represented on the existing committee: three of the committee s 13 members were trading creditors. Next, the court found that the unanimous voting pattern of the committee suggested that the committee had thus far been able to function properly. Finally, the court noted that even if it thought that the appointment of a separate committee was appropriate, most of the trading creditors held claims against other Enron affiliates, making it impossible to appoint a pure committee consisting only of creditors with claims solely against the trading debtors. Accordingly, the district court affirmed the bankruptcy court s finding that no additional committee need be appointed to achieve adequate representation. ANALYSIS Conflicts of interest among creditors are common in chapter 11 cases. Still, the existence of a conflict alone is generally insufficient to justify the appointment of separate committees to represent disparate constituencies. In some cases, individual creditors (or groups of creditors) can adequately rep- 2

3 resent themselves, by taking an active role in the bankruptcy either individually or by means of an informal committee. In others, the existing committee will be found to adequately represent all creditor interests regardless of competing member interests. Mirant illustrates that a committee can fulfill its fiduciary obligations to its constituency even if that constituency s agenda is not a shared one. Mirant is also noteworthy because it glosses over a contro- versial issue. This concerns the bankruptcy court s power to review the U.S. trustee s decisions concerning either the appointment or constitution of a committee. Some courts subscribe to the view that it is always within the court s discretion to second-guess the U.S. trustee s decisions to ensure adequate representation of creditor (or shareholder) interests in a chapter 11 case. Others take the approach that the U.S. trustee s decision is subject to the same standard of review as other administrative agencies, which can be disturbed only upon a showing of clear abuse. Both the bankruptcy and district courts in Mirant appear to have undertaken ple- nary review of the issue rather than deciding whether the U.S. trustee s refusal to appoint an additional committee was objectionable as a clear abuse. Mirant Americas Energy Marketing, L.P. v. Official Committee of Unsecured Creditors of Enron Corporation, 2003 WL (S.D.N.Y. Oct 10, 2003). LIMITING RELIANCE ON CONDUIT DEFENSE IN PREFERENCE LITIGATION Ilana N. Glazier One of the important policy considerations underlying U.S. bankruptcy law is equal treatment of similarly situated creditors. To that end, a bankruptcy trustee or chapter 11 debtor-in-possession can recover for the estate certain transfers made on the eve of a bankruptcy filing that unfairly prefer a favored creditor over others. Courts have developed an equitable exception to this rule, which, in some cases, exempts a party who is a mere conduit, or agent for the intended transferee, from liability on account of a preferential transfer. In In re Incomnet, the Ninth Circuit bankruptcy appellate panel recently clarified that this defense applies only in situations where the purported conduit can prove that it received the transfer on behalf of an identifiable third-party as part of a two-step transaction. LEGISLATIVE UPDATE Republican lawmakers attempted to jump-start long-stalled bankruptcy reforms on January 28, 2004, when the House of Representatives voted to combine a bipartisan bill already approved by the Senate late last year extending bankruptcy protection to farmers with the more comprehensive bankruptcy bill approved by the House in Like last year, the House version omits a controversial provision making the debts of abortion protestors non-dischargeable in bankruptcy. Senator Charles Schumer, who is a chief proponent of the measure, has already vowed to include the abortion provision in the Senate s version of the legislation. As such, 2004 may merely be a replay of last year, with no real prospect of breaking the deadlock on reforms first introduced over six years ago. AVOIDANCE OF PREFERENTIAL TRANSFERS Section 547(b) of the Bankruptcy Code provides that certain transfers of property to creditors that are made on account of an antecedent debt within the 90 days before a bankruptcy filing (or up to one year for insiders ) while the debtor was insolvent can be unwound, or avoided, by the trustee. Further, under section 550, if a transfer is avoided under section 547, the trustee may recover, for the benefit of the estate, the property transferred, or, if the court so orders, the value of such property, from (1) the initial transferee of such transfer or the entity for whose benefit such transfer was made; or (2) any immediate or mediate transferee of such initial transferee. The Bankruptcy Code does not, however, define transferee. Instead, courts must determine, on a case-by-case basis, whether a particular payee qualifies as such. THE CONDUIT DEFENSE The general rule is that the party who receives the property directly from the debtor is the transferee. Courts have, however, developed an equitable exception to this rule, which is often referred to as the conduit defense. Under this exception, in situations where the party receiving the property from the debtors is merely a conduit for the actual transferee, the trustee cannot recover the transferred property from the conduit, but rather, must pursue the ultimate transferee. The 3

4 defense recognizes the practical realities of modern commercial transactions involving banks, clearinghouses and other concerns that routinely effect hundreds or even thousands of daily transfers as middlemen. The conduit defense is one means of minimizing disruption in the efficient and expeditious processing of these transactions. To aid in distinguishing a conduit from a transferee, the Seventh Circuit developed a dominion or control test. Under this test, a transferee is the party that exercises dominion or control over the property. By contrast, a conduit does not have the ability, either pursuant to applicable law or because of a contractual obligation, to exercise dominion or control over the property. Instead, a conduit acts merely as an agent, transferring the property from the debtor to the transferee. The dominion or control test has been adopted by other jurisdictions, including the Ninth Circuit. INCOMNET The Universal Service Administrative Company ( USAC ) received approximately $470,000 during the 90 days before Incomnet, Inc. filed for bankruptcy. USAC is a nonprofit entity delegated by the Federal Communications Commission to collect, manage and distribute the funds that all interstate telecommunications providers, including Incomnet, are required to contribute, pursuant to the Telecommunications Act of 1996, to support a program aimed at providing universal telecommunications services in the United States. As part of its duties, USAC collects a percentage of revenues from all telecommunications providers. USAC then develops a disbursement budget, and following the FCC s approval of that budget, disburses the funds to, among others, schools, libraries and low-income consumers. Incomnet s plan of reorganization created a post-confirmation committee of unsecured creditors entrusted with prosecuting avoidance actions. The committee sued to recover the $470,000 pre-petition transfer to USAC on the grounds that it was a preferential transfer. In its defense, USAC argued that it was not a transferee, but merely a conduit for others. According to the USAC, it could not be a transferee because it does not ultimately control the funds that it receives and disburses, but rather, is subject to strict regulation by the FCC. The bankruptcy court agreed with USAC, despite USAC s inability to identify the actual transferee. As such, the effect of the court s ruling was that the funds could not be recovered from anyone. The bankruptcy appellate panel reversed on appeal. It faulted the bankruptcy court s application of the dominion or control test. According to the appellate panel, the test applies only in situations where there is a clear two-step transaction. The court explained that the dominion or control test differentiates between two identifiable parties, and identifies one as a conduit for the second or one as an initial transferee and the second as a subsequent transferee. It does not create an independent set of exceptions to section 550. Unless a clear conduit situation is identified, the general rule under section 550, that a party who receives a transfer is a transferee, remains in force. ANALYSIS The reasoning articulated in Incomnet is consistent with the policies of the Bankruptcy Code, which generally attempt to maximize the value of the debtor s estate for the benefit of all of the creditors. The decision also is consistent with prior caselaw, which applies equitable principles when analyzing preferential transfers and permits a conduit to escape liability for the transfer, focusing instead on the actual transferee. Incomnet clarifies prior decisions, making clear that, in order for a conduit defense to apply, there must be an identifiable transferee as part of a two-step, pass-through transaction. Post-Confirmation Committee of Unsecured Creditors Of Incomnet Communications Corp. v. Universal Service Administrative Company (In re Incomnet, Inc.), 299 B.R. 574 (B.A.P. 9 th Cir. 2003). PREFERENCE ACTION BARRED TO RECOVER PAYMENTS UNDER ASSUMED CONTRACT Carl. E. Black and Mark G. Douglas Debtors in large chapter 11 cases face the daunting task of sorting through hundreds or even thousands of pre-bankruptcy contracts to determine whether each one should be assumed or rejected in keeping with the debtors overall reorganization strategy. That determination should include an analysis of possible claims or causes of action that the debtor may have against the counter-party to each contract. If the debtor decides to assume a contract, it may be precluded from prosecuting those claims. The estate s inability to recover preferential payments made under an assumed executory contract was the subject of decisions recently handed down by the Third Circuit Court of Appeals and a 4

5 New York bankruptcy court. In In re Kiwi International Air Lines, Inc., the Third Circuit held that a bankruptcy trustee could not avoid payments made under various pre-bankruptcy contracts because the debtor-in-possession assumed the contracts and was obligated by a separate court-approved agreement to cure all outstanding defaults. A New York bankruptcy court employed like reasoning in In re Teligent, Inc., albeit in a slightly different context, ruling that the entity appointed under a plan of reorganization to prosecute estate preference claims was not entitled to vacatur of an order authorizing the debtors to assume a contract prior to confirmation. ASSUMPTION OF EXECUTORY CONTRACTS Section 365(a) of the Bankruptcy Code authorizes a trustee or chapter 11 debtor-in-possession to assume most unexpired or executory contracts subject to certain limitations. Among those are the obligation to cure existing defaults under the contract and to provide adequate assurance of the debtor s (or any court-approved assignee s) future performance. Once the bankruptcy court approves a debtor s request to assume a contract, both the cure obligations and any subsequent claims for breach of the assumed agreement are entitled to priority as administrative expenses and become obligations of the reorganized debtor. By contrast, if the debtor rejects an agreement, claims arising from the rejection will generally be relegated to the same status as other pre-petition unsecured claims. For certain kinds of contracts, the debtor s obligation to cure pre-bankruptcy defaults as a condition to continued use of property during a bankruptcy case may be subject to additional restrictions. For example, section 1110 of the Bankruptcy Code permits a debtor who leased or conditionally purchased aircraft or related equipment to continue to use such equipment for 60 days after a bankruptcy filing. After the 60-day period, the lessor or conditional vendor can repossess the aircraft or equipment unless the court approves an agreement (a section 1110 agreement ) obligating the debtor to perform all prospective obligations relating to the aircraft and to cure all existing defaults. AVOIDANCE OF PREFERENTIAL TRANSFERS The debtor s court-sanctioned undertaking to cure existing defaults can compromise its ability to commence avoidance litigation against the creditor in question. Section 547 of the Bankruptcy Code permits a trustee or debtor-in-possession to avoid transfers that are deemed to prefer unfairly one WHAT S NEW AT JONES DAY? Corinne Ball (New York) spoke on March 4th at a Corporate M&A program in San Francisco jointly sponsored by the American Law Institute and the American Bar Association. The topic of her presentation was Buying a Distressed or Bankrupt Company. On April 16th, she will be speaking at the 17th Annual Northwest Bankruptcy Institute in Portland, Oregon. The topics of her presentations will be The Relationship between Turnaround Management and Corporate Governance of a Chapter 11 Debtor and Asset Sales under Section 363 versus Sales under a Chapter 11 Plan. On March 5th David G. Heiman (Cleveland) was a panelist at VALCON: The Conference on Bankruptcy Liquidation jointly sponsored by the American College of Bankruptcy and the University of Texas Law School in Austin. The topic of his presentation was Pillowtex - A Case Study. Paul E. Harner (Chicago) was named one of the Outstanding Bankruptcy Law yers of 2003 by Turnarounds & Workouts. On February 10th Christopher L. Carson (Atlanta) spoke at a seminar in Atlanta on UCC Revised Article 9 presented by Lorman Education Services. The topic of his presentation was Perfection of a Security Interest under Revised Article 9. Jones Day has been recognized by The American Lawyer as one of the top three heavyweights in the bankruptcy and restructuring area. creditor over others. A transfer to a creditor on behalf of a pre-existing debt within 90 days of a bankruptcy filing (one year for insiders ) can be avoided if the debtor was insolvent at the time and the transfer allows the creditor to receive more than it would have received in a hypothetical liquidation under chapter 7 of the Bankruptcy Code. Favored unsecured creditors paid on the eve of a bankruptcy filing almost always receive greater payment on their claims than they would in a liquidation. However, if such creditors are party to agreements that are later assumed during the bankruptcy case, prebankruptcy payments that might otherwise be preferential will generally be insulated from avoidance. This was the import of the decisions issued in Kiwi International Air and Teligent. KIWI INTERNATIONAL AIR Air carrier Kiwi International Air Lines, Inc. filed for chapter 11 in During the 90 days prior to the filing, Kiwi made payments aggregating nearly $4 million under various contracts with the Port Authority of New York and New Jersey, the Sabre Group, and CIT Group/Capital Transaction, Inc. To avoid repos- 5

6 session of leased aircraft and engines, Kiwi negotiated a section 1110 agreement with CIT. The agreement, which was ultimately approved by the court, obligated Kiwi to cure all prepetition defaults relating to the leased aircraft and equipment and to make all post-petition payments due under the leases. Kiwi resolved to sell substantially all of its assets in lieu of devising a plan of reorganization. It accordingly sought court authority to enter into a sale agreement with Kiwi International Holdings. In connection with the sale, Kiwi assumed and assigned to Kiwi International its pre-petition contracts with CIT, the Port Authority and Sabre. As required by section 365 of the Bankruptcy Code, Kiwi cured all defaults under the contracts and provided adequate assurance of Kiwi International s future performance. The sale agreement expressly excluded the estate s avoidance actions from the transaction, stating, moreover, that actions against certain creditors other than CIT, Sabre and the Port Authority had been settled. The court converted Kiwi s bankruptcy case to a chapter 7 liquidation in Thereafter, the chapter 7 trustee sued CIT, Sabre and the Port Authority to recover as preferential transfers the $4 million paid to them immediately before Kiwi filed for bankruptcy. The defendants moved to dismiss. The bankruptcy court ruled that because sections 365(b) and 1110 mandate that Kiwi pay all amounts in arrears under the contracts, the payments did not improve the defendants position in bankruptcy and, as such, were not preferential. The district court upheld that determination on appeal. The Third Circuit affirmed. It rejected the trustee s contention that the hypothetical liquidation analysis required by section 547(b) should be conducted as of the petition date, and that, because Kiwi had not decided to assume the defendants contracts or to retain CIT s aircraft on that date, the payments allowed the defendants to be preferred over other unsecured creditors. Remarking that the trustee s analysis disregards the unique set of rights provided to the defendants by [section] 365, and, in the case of [CIT] by [section] 1110 as well, the Court of Appeals ruled that the defendants status differed from that of Kiwi s other pre-petition unsecured creditors. Assumption of the defendants contracts, the court emphasized, transformed their pre-petition claims into priority administrative expenses. The court further explained that CIT had the added benefit of a court-approved section 1110 agreement, which also elevated its claim for arrears to administrative status. The Third Circuit accordingly concluded that none of the defendants received more than they would have received in a chapter 7 liquidation, and affirmed dismissal of the preference actions. TELIGENT Telecom provider Teligent, Inc. filed for chapter 11 protection in It confirmed a plan of reorganization the following year and emerged from bankruptcy. Prior to confirmation, Teligent sought court authority to assume several hundred executory contracts, including an employee health insurance agreement with CIGNA Healthcare. Finding that Teligent proffered adequate business justification to assume the CIGNA agreement, the bankruptcy court approved Teligent s motion to assume the contract. Teligent s plan provided for the appointment of an unsecured claim estate representative to prosecute estate avoidance actions. The representative commenced an action against CIGNA seeking to recover as preferences certain payments made under the health insurance agreement during the 90 days preceding Teligent s chapter 11 filing. It also sought to vacate the bankruptcy court order authorizing Teligent to assume the agreement. According to the representative, vacatur was warranted because Teligent s business judgment in assuming the contract was flawed in light of the preferential transfers. It also claimed that unsecured creditors would suffer undue hardship if the representative were not allowed to prosecute the claims. The bankruptcy court denied the vacatur motion. Taking notice of the well established law that a preference action may not be maintained for payments made under assumed executory contracts, the court found that the representative failed to demonstrate that extraordinary circumstances justified vacatur of the assumption order. That order, the court emphasized, was entered based upon extensive evidence regarding Teligent s need for insurance of the kind provided by CIGNA and its unsuccessful efforts to find alternative sources of insurance on comparable terms. ANALYSIS Kiwi International Air Lines and Teligent illustrate that every component of a chapter 11 debtor s reorganization strategy must be carefully coordinated. Because the Bankruptcy Code transforms certain kinds of pre-bankruptcy debts into priority post-petition claims of administration, the consequences of assuming a contract, or entering into a new agreement, can be significant. Debtors (and creditor repre- 6

7 sentatives) must be wary to ensure that any assumed or new agreement is one that the debtor truly needs to reorganize and is capable of performing. Also, the estate s causes of action against the counter-party to an executory contract should be thoroughly assessed before the debtor decides to assume the contract. Otherwise, the estate can forfeit potentially valuable preference claims. Kimmelman v. Port Authority of New York and New Jersey (In re KIWI International Air Lines, Inc.), 344 F.3d 311 (3rd Cir. 2003). In re Teligent, Inc., 2004 WL (Bankr. S.D.N.Y. Jan. 8, 2004). NECESSARY MODIFICATIONS TO BARGAINING AGREEMENT NOT LIMITED TO BARE MINIMUM Shana F. Klein and Mark G. Douglas Collective bargaining agreements have featured prominently in recent headlines as cash-strapped airlines such as United Airlines, US Air and Midwest Air scramble to either emerge from or avoid bankruptcy. These and related developments provoke questions concerning the effect of a bankruptcy filing upon a labor contract. It is widely recognized that the Bankruptcy Code can provide relief to a debtor staggering under the load of an onerous labor agreement by allowing the debtor to reject the contract. Less understood, however, are the circumstances under which a bankruptcy court can authorize the rejection. So much so, in fact, that courts disagree on how certain requirements contained in the statute should be interpreted and applied. One area of controversy what modifications to a collective bargaining agreement are necessary to permit a reorganization was the subject of a ruling recently handed down by a New York bankruptcy court. In In re Horsehead Industries, Inc., the court held that necessary modifications are not limited to alterations that are essential to prevent the debtor s liquidation. COLLECTIVE BARGAINING AGREEMENTS IN BANKRUPTCY Section 365 of the Bankruptcy Code allows a bankruptcy trustee or chapter 11 debtor-in-possession to assume or reject almost any contract or agreement that has not expired as of the bankruptcy filing date. The court will authorize assumption or rejection if it is demonstrated that either course of action represents an exercise of sound business judgment. Until 1984, courts struggled to determine whether the same standard or a more stringent one should govern a debtor s resolve to reject a collective bargaining agreement. The U.S. Supreme Court answered that question in 1984, ruling in NLRB v. Bildisco & Bildisco that a bargaining agreement can be rejected under section 365 if it burdens the estate, the equities favor rejection and the debtor made reasonable efforts to negotiate a voluntary modification without any likelihood of producing a prompt satisfactory solution. Congress changed that later the same year, when it enacted section 1113 of the Bankruptcy Code in response to a groundswell of protest from labor interests. Section 1113 provides that the court shall approve an application to reject a bargaining agreement only if: the debtor makes a proposal to the authorized representative of the employees covered by the agreement; the authorized representative has refused to accept the debtor s proposal without good cause; and the balance of the equities clearly favors rejection of the agreement. The provision ensures that a chapter 11 debtor-employer cannot unilaterally rid itself of its labor obligations, and instead, mandates good faith negotiations with the union before rejection may be approved. To that end, section 1113 carefully spells out guidelines for any proposal presented by the debtor to the authorized labor representative. Underlying these guidelines is the premise that all parties must exercise their best efforts to negotiate in good faith to reach mutually satisfactory modifications to the bargaining agreement and that any proposal to modify fairly treats all creditors, the debtor and other affected parties. Among other things, each proposal must be based on the most complete and reliable information available and must provide for those necessary modifications in the employees benefits and protections that are necessary to permit the reorganization of the debtor. SPLIT IN AUTHORITY Courts are split on what modifications to a bargaining agreement qualify as necessary within the meaning of section The courts of appeal for the Second and Third Circuits have divergent views concerning the extent to which modifications must be necessary, and the objective of the modifications. In Wheeling-Pittsburgh Steel Corp. v. United Steelworkers of America, the Third Circuit ruled that the term necessary includes only those minimum modifications that the debtor is constrained to accept because they are directly related to the Company s financial condition and its reor- 7

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