Morning reports announced that UAL Corp., the holding company of United Airlines, made bankruptcy history by winning court approval for a $5 billion government bailout of its underfunded pension plans. If the deal receives final approval from officials at the Pension Benefit Guaranty Corp., and UAL transfers its pension liabilities to the government fund, it will be the largest pension default in U.S. history.
The reference to bankruptcy history reminded me of Scott Sandage’s new book, Born Losers: A History of Failure in America. The 362-page work is chock full of interesting and surprising bankruptcy tales woven into a tight history of how a nation obsessed with winning often succeeded by failing first.
The book also serves as a reminder that the thorny issues surrounding the UAL bailout should not unfairly taint legitimate bankruptcy law. A $5-billion government bailout is a far cry from a failed company filing for Chapter 11 protection.
My worry is that ardent bankruptcy reformers—we just heard from a slew of them who fought to pass the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 in April—will use the UAL deal to tighten bankruptcy rules even further. To be sure, the new Act, which revised the U.S. Bankruptcy Code and will go into affect in October, will undoubtedly hamstring many businesses that deserve a fresh start.
That said, I'm standing with the framers of the U.S. Constitution ( see Article 8), and most of the bankrupt entrepreneurs that Sandage writes about in his book—including Abraham Lincoln and Harry Truman. National bankruptcy laws must strike a balance between business innovation and business risk, not strike down the idea of a fresh start.
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