Third Circuit Prohibits Visteon From Terminating Benefits Plan In Bankruptcy

On July 13, 2010, a three-judge panel of the United States Court of Appeals for the Third Circuit unanimously held that auto-parts supplier Visteon Corporation could not terminate health and life insurance benefits for approximately 2,100 retirees during its chapter 11 bankruptcy unless Visteon followed the specific requirements laid out in section 1114 of the Bankruptcy Code, even if Visteon would have had the unilateral right to terminate these benefits outside bankruptcy. The Court found that a debtor may terminate any retiree benefits in bankruptcy only if, inter alia, the debtor negotiates in good faith with the retiree representative, the representative fails to consensually agree to the needed modifications and the debtor demonstrates that the termination during the bankruptcy is necessary for the debtors' reorganization and treats all parties fairly. Subsequently, Visteon reached a settlement with certain of its unions representing retirees, facilitating its exit from chapter 11. Read More