Bankruptcy as an Escape Hatch

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Legal scholars feared that the ruling might give apparently healthy companies bottom-line reasons to use the bankruptcy law as an escape hatch from high-priced labor agreements. Indeed, when Continental Air Lines and Wilson Foods Corp. filed for bankruptcy last year, they were accused of trying to rid themselves of unwanted labor contracts. "In itself, the decision will not cause companies to file for bankruptcy," said New York University Law Professor Lawrence King, a bankruptcy expert. "But it will make bankruptcy more attractive." Bildisco President Sal Valente disagreed: "Going into Chapter 11 is debilitating. Doing it just to solve a union problem would be like cutting off your nose to spite your face."

That may be true. But whatever the drawbacks, bankruptcies are multiplying. In fiscal 1980, 5,765 firms filed for bankruptcy. By 1983 that figure had ballooned to 17,608. The causes: the recession and its aftermath, and a 1978 overhaul of the Bankruptcy Code that permits troubled, but not insolvent, firms to declare bankruptcy. The 1978 change has made bankruptcy both a shield and a sword. Robert Miller, executive vice president of Congress Financial Corp., a commercial lending institution, supports the Bildisco decision but finds the growth of bankruptcies disturbing. Says he: "Any time a company makes a bad business deal, whether it's a union contract or a lease, it can resort to Chapter 11."

That possibility seems short-lived. The ink was barely dry on the court's decision when Democratic Congressman Peter Rodino of New Jersey introduced a bill to reverse it. In anticipation of the Bildisco ruling, Democratic Congressman Paul Simon of Illinois in early February submitted legislation to amend the National Labor Relations Act. "The court's decision was so total," said Captain Henry Duffy, president of the Air Line Pilots Association, "if this doesn't gear up organized labor for a massive blitz on Congress, nothing will." ∎