Financial Reorganization Bankruptcy is best for Victims and the BSA

[Cburkhardt]

The news conferences this week again raised the issue of the future of BSA finances and properties in light of abuse incidents and the ongoing repeal of "statutes of limitations" by states.  This topic will narrowly focus on what financial reorganization bankruptcy is, the high likelihood that the BSA will file one this year and the likely organizational and operational impacts such a process will cause.  I am doing this to allow Scouters to be informed in an organized manner in advance of a filing so we can help others understand the circumstances when they occur.  The filing will provide an opportunity for significant misunderstanding by our own people and a massive "pile on" by BSA competitors and advisories.  Please do not argue BSA membership policy changes, alleged linkage of homosexuality to abuse, adding girls to Cubs and Scouts BSA and similar matters on this posting.  There are other postings where those issues have been well-discussed.  Please use lay terms rather than legal terms to describe the proceedings in order to make the discussion welcoming and understandable to all.

The Basics

Bankruptcy is established in federal law.  The reason for its existence is to allow individuals and organizations to get a "fresh start" after extreme financial difficulties. 

The most common form of bankruptcy occurs when the entity has run out of cash and piled up so many bills that the financial circumstance just cannot be favorably resolved.  This is typically called a "Chapter 7".  The Bankruptcy Judge and the Bankruptcy Trustees that work for the Judge total up the remaining assets and debts, and the creditors get a proportionate share.  Often the creditors get nothing because there are no remaining assets.  If an organization files a "Chapter 7", it generally ceases to exist after the process is complete, because it is "going out of business".

The other principal type of bankruptcy is a financial reorganization bankruptcy, often called a "Chapter 11".  The essence is that a financial reorganization bankruptcy recognizes an extreme financial circumstance -- but also an ongoing viability of the organization.  The entity gets to keep assets and properties necessary to continue its existence, settle its debts with creditors as of a particular date, and continues future operations with its previous debts discharged.  This is the type of bankruptcy proceeding the BSA would file -- because it has cash, property and insurance accessible to pay abuse claims and continue program operations.

Should the BSA File for Financial Reorganization?

The BSA is generally well-run from a business standpoint.  It pays its bills on-time.  It's principal financial problem is that lawsuits claiming abuse have become a huge drain on finances.  The BSA has settled most cases over the years, but more-recent cases have gone to trial and have resulted in eye-popping judgements against the BSA.  A huge driver of new suits is that states are now repealing applicable "statute of limitation" laws that normally require a person to file a case within a stated number of years from an alleged incident.  So, the BSA will now be sued for alleged abuse violations that took place at any point of history -- regardless of whether the alleged perpetrators or witness are even alive.  It really does not matter how you feel about the substantive issues regarding the abuse allegations -- this is going to result in a cascade of lawsuits that will simply overwhelm the BSA's ability to defend or settle these cases and continue to serve youth into the future.  My personal view based on public information, is that the BSA can and should file for financial reorganization bankruptcy at a time when it fully understands the basic financial circumstances.  It has retained preeminent attorneys to provide advice on this.

If the BSA does not file for financial reorganization, it would then face the significant risk that its insurance and assets and the insurance and assets of councils (that might additionally found liable in an abuse event) would be overwhelmed by the lawsuits.

Financial reorganization bankruptcy is also the just and Scout-like thing to do.  It will cause a Bankruptcy Judge and the Bankruptcy Trustees to evaluate what the BSA needs to retain and thereafter marshal a fund of insurance proceeds and some BSA resources to pay victim claims which must be submitted to the Bankruptcy Court by a specific date.  The Judge/Trustees would then pay claims that they believe are credible from that fund.  There would be no more state court trials.  Afterward, those who did not file a claim with the Court would not be able to sue the BSA.  In my personal view, this pays more claimants and prevents a huge windfall for trial attorneys.  It also allows for a single nationwide standard to determine the credibility of claims.  

The choice is this:  Shall the BSA be substantially dissolved as an organization and its services be unavailable to future generations in order to pay abuse claims largely from the early 80s and before?  Or, should the BSA establish a set amount of funds available through a financial reorganization bankruptcy for the Bankruptcy Trustees to assess and pay those claims -- and keep needed assets to continue our programs (under our current Youth Protection program)?  I prefer the latter, because I know through personal engagement and observation that Scouting is as relevant today as ever and is quite safe for out youth under its YPT program.

A Chapter 11 financial reorganization bankruptcy for the BSA will be extraordinarily complex, time-consuming and expensive.  A key issue will be determining how council assets will be treated and assure that councils are protected from future lawsuits.  But, this is the best way for abuse victims, future beneficiaries of BSA programming and the BSA itself (including councils) to go.

Only My Personal Opinions

Everything I have written here is my own personal opinion and is informed only by available public information.  I am not an insider on this potential legal proceeding.  However, we have a duty to educate our fellow Scouters in advance of what will probably be a sudden announcement followed by a whirlwind of media attention.  The BSA is a strong and safe organization and it programs are popular and safe for children.  We argue about its program because we care about our children.  This is good.

I invite you to share thoughts, questions and opinions on what you believe is best.

 

[Cburkhardt]

I'll be at our District Camporee with our Troop this weekend, so I won't be too active on this posting until Sunday night. 

[Jameson76]

So...there are many entities within the BSA.  National (National and Regions) and then the Councils.  The suits are against BSA National (I believe), though likely the local councils were named in the suits.  Or, if the lawyers get enough clients "will" be named in the suits.

With business type bankruptcy, and assuming Chapter 11 for reorganization and not Chapter 7 liquidation.  With Chapter 11 one of the first steps is to secure DIP (Debtor in Possession) financing so that National BSA can continue operations.  To be sure, not clear how Chapter 11 would effect the assets of the Boy Scouts.  Specifically Intellectual Property (Name BSA, ranks, images, Eagle Scout name, etc), also physical properties such as Philmont, Summit, and to some degree Northern Tier and Seabase.  I think more of the 2 latter HA bases may be leased, but could be wrong on that.

The unknown will be the ripple effect if National BSA does go the bankruptcy route.  Will that cause local councils to go that route to protect their assets. Council offices, camps, etc.

Whatever the course, will be messy.

[The Latin Scot]

38 minutes ago, Cburkhardt said:

I'll be at our District Camporee with our Troop this weekend, so I won't be too active on this posting until Sunday night. 

As will I, but I'm eager to read more about this topic.

[mashmaster]

I have gotten requests to talk to reporters about this on TV this morning.   I very quickly turned them down about pointed them to the press release from BSA.  We have to all remember, we do not represent BSA in any official manner but can do inadvertent damage to the program by talking about the issue publicly without any real in-depth knowledge and specific background/training in the domain.

 

[Cburkhardt]

Jameson:  You are correct in concluding this will be very complicated.  Perhaps one of the most complex financial reorganizations in bankruptcy history.  Essentially the BSA is the national organization and contains within it all above-council governance and assets (the extent to which they are owned).  Councils are separate from a corporate standpoint, and their assets are owned separately.  However, there is a close relationship between BSA and the councils to the point where "control" over councils can become an issue in legal proceedings.  The degree to which council assets are at risk in bankruptcy is unknowable to me due to lack of information.  It might be that councils which have significant potential liability for abuse claims might want to be included in the financial reorganization process in order to receive the benefits of the liability discharge.  The degree of potential liability probably varies widely between councils, but with the statutes of limitation being lifted, almost any council is now going to be subjected to claims regarding events from long ago.  Bankruptcy specialists might even construct a process by which all councils can benefit from the discharge as well as BSA.  When you think about it, we do need the organizational "fresh breath" which is a significant purpose of bankruptcy.  After the process starts and the expected uproar dies down, this will be a fascinating case to follow. 

[ParkMan]

1 hour ago, Cburkhardt said:

The choice is this:  Shall the BSA be substantially dissolved as an organization and its services be unavailable to future generations in order to pay abuse claims largely from the early 80s and before?  Or, should the BSA establish a set amount of funds available through a financial reorganization bankruptcy for the Bankruptcy Trustees to assess and pay those claims -- and keep needed assets to continue our programs (under our current Youth Protection program)?  I prefer the latter, because I know through personal engagement and observation that Scouting is as relevant today as ever and is quite safe for out youth under its YPT program.

It strikes me that this is the way to frame the conversation.  That the BSA is proactively looking to determine a way to both

• responsibly compensate victims of abuse
• fullfill it's Congressionally mandated responsibilty to deliver the Scouting program to the youth of the country - both today and for decades to come.

I've had some hope for a while now that Congress would get involved and create some sort of fund from which these sorts of claims would be paid.  While I acknowledge that the BSA's mistakes contributed to the crisis - those mistakes happened well before the current BSA leadership was invovled and that happened well before the current members of the organization were involved.  But, I 'm realistic to know that this won't happen.

[SSScout]

2 hours ago, Cburkhardt said:

I'll be at our District Camporee with our Troop this weekend, so I won't be too active on this posting until Sunday night. 

Popular weekend, I guess.  Look for me in the Vexilollogy   tent .  

 National sets the standards, Councils are franchise units, yes?  But the Scout Promise and Law mean.... what,  in a law suit that has almost global implications.... 

 

[gpurlee]

I suspect that a bankruptcy filing is inevitable, probably sooner than later at this point. One of my concerns as a chartered organization representative and long time Scouter, is the impact of a bankruptcy filing by the national BSA on sponsoring organizations. The BSA, up to this point, has provided primary coverage to the sponsoring institutions and has provided a fairly high level of protection.  However, if the resources of the national organization become limited due to an overwhelming number of lawsuits,  it a likely that sponsoring organizations who "own" the unit may be at increased risk. As sponsors recognize this, recruitment and retention of sponsors may become very challenging. At the very least, it is incumbent upon sponsors and chartered organization representatives to be very involved and proactive to make sure that all child protection policies are followed at all times and there is strong oversight of the unit operations. However, from my experience,  Scouting units are too often viewed simply as a community group housed by the organization rather than a part of the organization.  The sponsor plays a very passive role. And it does little to reassure our existing and prospective sponsors when law firms are actively running advertisements seeking persons to file lawsuits.

[NJCubScouter]

Welcome to the forum gpurlee!

[walk in the woods]

1 hour ago, Cburkhardt said:

we do need the organizational "fresh breath" which is a significant purpose of bankruptcy

When GM declared bankruptcy a decade back, the pre-packaged deal formed a new company that purchased the GM name, Chevrolet, GMC, Cadillac brands, a bunch of factories and facilities, and some financial obligations.  A month after the filing the new company started business as General Motors and the old GM took whatever was left and ground through the process.  If the BSA is looking for a way to significantly restructure the organization it's not out of the question I suppose.

I think @gpurlee hits at the core of the issue.  How will this process affect COs and recruiting on the ground.  The more stories with BSA, Sexual Assault, and Bankruptcy in the headline, the harder it becomes.

[NJCubScouter]

33 minutes ago, walk in the woods said:

When GM declared bankruptcy a decade back, the pre-packaged deal formed a new company that purchased the GM name, Chevrolet, GMC, Cadillac brands, a bunch of factories and facilities, and some financial obligations.  A month after the filing the new company started business as General Motors and the old GM took whatever was left and ground through the process.  If the BSA is looking for a way to significantly restructure the organization it's not out of the question I suppose.

I think that gets a little tricky when you are talking about a not-for-profit corporation.  There's no stock to transfer.  There really aren't any "owners."  And even if you could figure out a way to do that, the Congressional Charter probably complicates things.  Transferring it would probably require passage of a bill by both Houses of Congress and signature by the president.  If I were the BSA, I would want to stay as far away as possible from the federal legislative process right now.

[The Latin Scot]

2 hours ago, SSScout said:

Popular weekend, I guess.  Look for me in the Vexilollogy   tent .  

Everybody seems to be heading to Camporee this weekend! I wish our district had a whole tent devoted to vexilollogy.. We're going with a "Scouts of the Roundtable" theme this year, but the attempts of the powers-that-be to explain the terminology of medieval flags and heraldry has been ... poor at best. Luckily all of the patrols in our troop are already medieval-themed, so our patrol flags are already in line with heraldic tradition (they consulted with my father, a noted aficionado of heraldry and tapestry-making). I am however curious to see how other units attempt to represent themselves with their "medieval flags" this weekend! 

Back to the topic however, I worry that with all the poor media coverage of the BSA record-keeping, the financial problems of the organization will only be exacerbated. I hope there are other options besides flat-out bankruptcy, but having absolutely no understanding about such economic concerns, I daren't make any predictions about what may occur, nor any suggestions as to what ought to happen. But I am certainly deeply concerned about what the future holds for the BSA.

[MikeS72]

10 minutes ago, The Latin Scot said:

We're going with a "Scouts of the Roundtable" theme this year,

Sounds like fun.  I wonder if yours is the district I saw mentioned on an OA Facebook page, where they will be doing call out dressed as knights rather than in the usual NA regalia.

[Cburkhardt]

We are using the same theme in DC this weekend.  Since the OA is running our event, they must have picked up the idea at a conclave.