Under the bankruptcy code, when a company declares bankruptcy they are granted an ?automatic stay' which is designed to prevent individual creditors from claiming parts of the debtor's estate before a bankruptcy judge can rule on how to divide the estate between various creditors. However, there is an exemption in the code for ?governmental units' which are exercising regulatory authority or police power. The Grassley amendment stops debtors from using bankruptcy laws to frustrate legitimate governmental actions.
The international body which oversees enforcement of the Chemical Weapons Convention is non-governmental and therefore is not covered under the exemption. This means that under current law a bankruptcy court could issue an injunction preventing any inspection for, or seizure of, chemical weapons. If this law had not been changed, the United States would come into non-compliance with the treaty. The Grassley amendment was passed today as part of the Chemical Weapons Convention implementing legislation.
In addition, Grassley's amendment applies to domestic companies who are in violation of federal regulations. For instance, if a company or manufacturer is polluting a waterway, the Environmental Protection Agency (EPA) is able to seize their chemicals to stop the polluting. But, under current law, that same company could file bankruptcy and receive an automatic stay which would force the EPA to go to court to have the bankruptcy protection law waved.
Federal and state regulators currently have the power to seize materials which are found to be in violation with regulations. The Grassley amendment simply prevents unscrupulous companies from taking advantage of a legal technicality to avoid having to face the consequences of illegal conduct.
"I am pleased the Senate adopted this common-sense amendment. The bankruptcy code should not cause the United States to break international agreements. Furthermore, the code should not be misused by irresponsible companies to continue polluting or proliferating chemical weapons," said Grassley.
Grassley is a senior member of the Judiciary Committee , and serves as the Chairman of the Judiciary Subcommittee on Administrative Oversight and the Courts which oversees bankruptcy laws.
