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company must cut OPEB. In the interim, continue to timely pay all retiree benefitsunless and until they are modified under section 1114.ConclusionAs you might imagine, a bankruptcy filing can drastically alter a company’s treatment of itsretirees, in addition to its employees. As a distressed company prepares for, and files, abankruptcy petition, it should consider the foregoing issues, which address important legacyliability-related bankruptcy concerns.Treatment of RecordsAuthored by: Philip V. Martino and Sarah K. Baker, Quarles & Brady LLPClient and Donor DatabasesIn the Bankruptcy Code, Section 363(b)(1) specifically restricts a Chapter 7 trustee's ability to sellassets that may contain or constitute Personally Identifiable Information ("PII"). Among anonprofit business’ most valuable assets are its client and donor databases. These databases arelikely to contain the following types of information: (i) client and donor credit card and or bankaccount information; (ii) client and donor social security numbers; and (iii) client and donornames and addresses. These types of information are considered PII under the Code, and areafforded special protection in a bankruptcy sale.The Bankruptcy Code defines PII as any of the following types of information, if provided by anindividual to the Debtor in connection with obtaining a product or service from the Debtorprimarily for personal, family, or household purposes: (i) first name (or initial) and last name;(ii) geographical address; (iii) electronic (e-mail) address; (iv) telephone number associated withphysical place of residence; (v) social security number; and, (vi) credit card number.PII also includes each of the following items of information, if such item is connected to any ofitems (i) through (vi) above: (a) a birth date; (b) birth or adoption certificate number; (c) place ofbirth, or (d) any other information regarding an identified individual that, if disclosed, willresult in contacting or identifying that individual telephonically or electronically.To the extent a nonprofit corporation's client and/or donor databases contain informationconstituting PII, the nonprofit corporation may not be able to sell that information during itsbankruptcy proceedings. Section 363(b)(1) restricts the transfer of PII where: (i) Debtor had aprivacy policy in effect on the petition date; (ii) the policy prohibited the transfer of PII topersons not affiliated with the Debtor, and (iii) the policy was communicated to individuals notaffiliated with the Debtor. For instance, if the nonprofit company provided instructions formaking donations or procuring services on its website, and the website also contained languagestating that any information provided by the donor or client to the Debtor would not becommunicated, sold, or otherwise transferred to a third party, that language may be sufficientto constitute a privacy policy for purposes of Section 363(b)(1).If the nonprofit corporation did not have a privacy policy in effect prior to filing its bankruptcypetition, the information may be sold under the Code, so long as the sale complies with56
applicable non-bankruptcy law. The nonprofit business and its legal counsel should reviewstate and federal privacy laws to determine whether any restrictions on the transfer ofinformation in the client and donor databases applies.If the privacy policy does not permit the transfer of PII, the transfer may still occur, but onlyafter the Court orders the U.S. Trustee to appoint a consumer privacy ombudsman, and afternotice and hearing, the Court must approve the sale. The consumer privacy ombudsmanprovides the court with information to assist the court in its consideration of the facts,circumstances, and conditions of the proposed sale of PII. Such information may include: (i) theprivacy policy; (ii) the potential losses or gains of privacy to consumers if the sale is approved;(iii) the potential costs or benefits to consumers if such sale is approved; and (iv) the potentialalternatives that would mitigate potential privacy losses or costs to consumers.Consumer privacy ombudsmen appointed by Bankruptcy Courts have supported the sale ofPII, provided that certain conditions were met, such as: (i) the purchaser must be in materiallythe same line of business as the seller; (ii) the purchaser must use the PII for the same purposesas are specified in the applicable privacy policy; (iii) the purchaser must agree to comply withthe applicable privacy policy; (iv) the purchaser offers consumers the opportunity to "opt out"of any "material changes" it plans to make to the applicable privacy policy; (v) the purchasermust agree to employ appropriate information controls and procedures (technical, operationaland managerial) to protect the PII; and (vi) the purchaser must agree to abide by any applicablestate privacy and data breach laws. For more information on this topic, refer to SellingCustomer Data in Bankruptcy Raises Privacy Concerns, Journal of Corporate Renewal (March2012) by Lauren Nachinson.Special Rules for Educational InstitutionsThe Code contains specific provisions for Debtors whose businesses function as accreditededucational institutions. First are those relating to the automatic stay. These provisions can befound in Section 362(b)(14) to (16). Specifically, these subsections provide that filing abankruptcy petition does not operate as a stay: (i) of any action by an accrediting agencyregarding the accreditation status of the Debtor as an educational institution; (ii) of any actionby a State licensing body regarding the licensure of the Debtor as an educational institution; or(iii) of any action by a guaranty agency, as defined in section 435(j) of the Higher Education Actof 1965 or the Secretary of Education regarding the eligibility of the accredited educationalinstitution.Debtor to participate in programs authorized under such ActPursuant to these sections, certain government agencies are permitted to continue monitoringeducational institutions that have filed for bankruptcy. The government agencies maywithdraw an educational institution's accreditation and/or licenses without violating theautomatic stay. Moreover, if the Debtor is an educational institution that is participating incertain student loan guarantee programs with the government, the agency guaranteeing loansmade by the Debtor can withdraw its participation in the guarantee program without violatingthe stay. In re Betty Owen Schools, Inc., 195 B.R. 23, 28 (Bankr. S.D.N.Y. 1996) (position takenby U.S. Department of Education in litigation with Debtor related to eligibility of Debtor toparticipate in programs under the HEA was exempted from the automatic stay under section362(b)(16)).57
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GUIDE TO BANKRUPTCY ISSUES FOR ILLI
Page 9 and 10: Reorganize, or Liquidate?After a th
Page 11 and 12: CommitteesThe existing committee st
Page 13 and 14: Commitment and CompositionWe talked
Page 15 and 16: these requirements as it begins to
Page 17 and 18: the appointment of a committee is m
Page 19 and 20: Property of the EstateOnce a debtor
Page 21 and 22: Next, the Bankruptcy Code lists a n
Page 23 and 24: Executory Contracts and Unexpired L
Page 25 and 26: ule is clear: bankruptcy seeks to m
Page 27 and 28: In addition to the bankruptcy petit
Page 29 and 30: Compensation and reimbursement of p
Page 31 and 32: payments to the telephone company a
Page 33 and 34: provision of the Code may require t
Page 35 and 36: entitled to priority over other uns
Page 37 and 38: This discussion will also involve t
Page 39 and 40: in the ordinary course, non-ordinar
Page 41 and 42: While the debtors and the committee
Page 43 and 44: into an involuntary Chapter 11 fili
Page 45 and 46: grants to assess whether or not the
Page 47 and 48: the nonprofit in completing its cou
Page 49 and 50: (4) The proposed modifications must
Page 51 and 52: administrative expense priority. Fu
Page 53 and 54: companies in the S&P 500 maintainin
Page 55: ight to payment under a benefits pl
Page 59 and 60: egarding the quality of patient car
Page 61 and 62: ankruptcy proceeding should consult
Page 63 and 64: the nonprofit should approach its c
Page 65 and 66: newly formed organization and seek
Page 67 and 68: period of time, to the issuance of
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