On July 13, 2010, the U.S. Court of Appeals for the Third Circuit in the Chapter 11 case of auto supplier Visteon Corporation reversed the courts below, which had permitted Visteon to terminate the health and insurance benefits of 2,100 retirees without complying with the procedures set forth in §1114 of the Bankruptcy Code. The Third Circuit held that even if an employer could unilaterally terminate outside of bankruptcy retiree benefits consistent with plan documents, collective bargaining obligations and the prescriptions of the Employee Retirement Income Security Act of 1974, Bankruptcy Code §1114 explicitly limited a debtor’s ability to terminate during bankruptcy those retiree benefits.1 Not only is Visteon one of the most significant appellate decisions to date on the topic of retiree benefits in bankruptcy, it is also notable because it endorses a reading of the Bankruptcy Code that expands a party’s prepetition rights, which is counter to the usual contraction of prepetition rights in bankruptcy.

Retiree Benefits in Chapter 11

Bankruptcy Code §1114 is designed to protect the health, life, and disability benefits of retirees, who would otherwise be without such benefits, by providing procedures and heightened standards for modifying the payment of retiree benefits in a Chapter 11 case.2 Section 1114 was enacted in the wake of the mid-1980s’ bankruptcy of steelmaker LTV Steel Corporation.

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