CHAPTER 9 ADMINISTRATION
Sub Chapter II General Provisions
Sec. 926. Avoiding powers
(a) If the debtor refuses to pursue a cause of action under section
544, 545, 547, 548, 549(a), or 550 of this title, then on request of a
creditor, the court may appoint a trustee to pursue such cause of
(b) A transfer of property of the debtor to or for the benefit of
any holder of a bond or note, on account of such bond or note, may not
be avoided under section 547 of this title.
(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2623; Pub. L. 100-597, Sec. 6,
Nov. 3, 1988, 102 Stat. 3029.)
Historical and Revision Notes
Section 926 of the House amendment is derived from section 928 of
the Senate bill. The provision enables creditors to request the court to
appoint a trustee to pursue avoiding powers if the debtor refuses to
exercise those powers. Section 901 of the House amendment makes a
corresponding change to incorporate avoiding powers included in the
Senate amendment, but excluded from the House bill.
senate report no. 95-989
This section [928 (enacted as section 926)] adopts current section
85(h) [section 405(h) of former title 11] which provides for a trustee
to be appointed for the purpose of pursuing an action under an avoiding
power, if the debtor refuses to do so. This section is necessary because
a municipality might, by reason of political pressure or desire for
future good relations with a particular creditor or class of creditors,
make payments to such creditors in the days preceding the petition to
the detriment of all other creditors. No change in the elected officials
of such a city would automatically occur upon filing of the petition,
and it might be very awkward for those same officials to turn around and
demand the return of the payments following the filing of the petition.
Hence, the need for a trustee for such purpose.
The general avoiding powers are incorporated by reference in section
901 and are broader than under current law. Preference, fraudulent
conveyances, and other kinds of transfers will thus be voidable.
Incorporated by reference also is the power to accept or reject
executory contracts and leases (section 365). Within the definition of
executory contracts are collective bargaining agreements between the
city and its employees. Such contracts may be rejected despite contrary
State laws. Courts should readily allow the rejection of such contracts
where they are burdensome, the rejection will aid in the municipality's
reorganization and in consideration of the equities of each case. On the
last point, ``[e]quities in favor of the city in chapter 9 will be far
more compelling than the equities in favor of the employer in chapter
11. Onerous employment obligations may prevent a city from balancing its
budget for some time. The prospect of an unbalanced budget may preclude
judicial confirmation of the plan. Unless a city can reject its labor
contracts, lack of funds may force cutbacks in police, fire, sanitation,
and welfare services, imposing hardships on many citizens. In addition,
because cities in the past have often seemed immune to the constraint of
``profitability'' faced by private businesses, their wage contracts may
be relatively more onerous than those in the private sector.'' Executory
Contracts and Municipal Bankruptcy, 85 Yale L. J. 957, 965 (1976)
(footnote omitted). Rejection of the contracts may require the
municipalities to renegotiate such contracts by state collective
bargaining laws. It is intended that the power to reject collective
bargaining agreements will pre-empt state termination provisions, but
not state collective bargaining laws. Thus, a city would not be required
to maintain existing employment terms during the renegotiation period.
1988--Pub. L. 100-597 designated existing provisions as subsec. (a)
and added subsec. (b).
Effective Date of 1988 Amendment
Amendment by Pub. L. 100-597 effective Nov. 3, 1988, but not
applicable to any case commenced under this title before that date, see
section 12 of Pub. L. 100-597, set out as a note under section 101 of
Section Referred to in Other Sections
This section is referred to in sections 106, 902 of this title.