Re: bankruptcy questions

[Michael Perelman <michael@xxxxxxxxxxxxxxxxx>]

David, please tell me why labor contracts seem to be the first to go.  In the case of 
theaters, labor costs are not particularly high -- especially with the multiplexes.  I 
speak as someone who used to take tickets back in the 50s.

On Thu, Sep 22, 2005 at 10:17:33AM -0700, David B. Shemano wrote:
> You (and others) don't have to believe me, but I am not making this up.  Under the Bankruptcy Code, corporations have the right to "reject" ((stop performing under) essentially ALL of their contracts.  For instance, in the US, almost every theater chain when through chapter 11 several years ago for one reason -- get out of bad real real estate leases entered into when the chains overexpanded.  There was nothing the landlords could do.  Corporations file chapter 11 to get out of disfavorable supply contracts.  The list goes on, and there is nothing the non-debtor party can do.  Alone among contracts, there are special rules making it difficult for corporations to get out of collective bargaining and pension agreements.  In order to stop performing under these agreements, the corporation must essentially present financial projections to the Bankruptcy Court that demonstrate the corporation will have to liquidate unless the agreements are modfified.  The unions, retirees, PBGC all have the opportunity to respond and demonstrate alternatives.  There are actually very few cases where the corporations have successfully modified those agreements.  Those cases are often large and get a lot of attention, but they remain rare overall.

-- 
Michael Perelman
Economics Department
California State University
Chico, CA 95929

Tel. 530-898-5321
E-Mail michael at ecst.csuchico.edu