During the course of recent negotiations between US automotive supplier Delphi (Troy, Michigan; www.delphi.com), its trade unions and auto manufacturer General Motors (GM), Delphi CEO Steve Miller threatened to file for bankruptcy. He did so not only in view of the company´s difficult financial situation, but also because he did not want to wait for revised US insolvency legislation to take effect from 17 October. This will limit a company´s maneuvering room when filing for protection under Chapter 11.

One of the key points in the new legislation is the limitation of the exclusivity period, the 18-month span during which a company in Chapter 11 has the sole right to propose a reorganisation plan. If management does not draft a proposal within this period, creditors may submit an alternative – and quite possibly more aggressive – plan to the judge hearing the case. Until now, the court could allow the debtor company virtually unlimited extensions of the exclusivity period. The new laws also will place restrictions on the premiums paid to executives of companies in bankruptcy.

The reason for the changes that US President George W. Bush signed into law this April is that many companies have been making themselves comfortable under bankruptcy protection. One prominent example is United Airlines, which has been in insolvency proceedings for nearly three years. On several occasions, the airline has revised its forecasts as to when the creditor protection can be ended, and it has now submitted a new reorganisation plan that will extend the procedure once again – this time until February 2006.