House panel summons Circuit City officials

Officials with Circuit City Stores Inc. have been asked to testify before a congressional subcommittee Tuesday to discuss what happened during its bankruptcy case.

The hearing, before the House Subcommittee on Commercial and Administrative Law, is called “Circuit City unplugged: Why did Chapter 11 fail to save 34,000 jobs.“

The committee will look into how changes to federal bankruptcy law in 2005 have affected the abilities of companies like Circuit City to restructure, said Jonathan Godfrey, a spokesman for the House Judiciary Committee.

Henrico County-based Circuit City, once the nation’s second-largest consumer-electronics retailer, filed for bankruptcy protection in November.

In January, it was forced to liquidate after it was unable to find a buyer or the necessary financing to keep the company operating. As a result, it is laying off 34,000 U.S. workers and closing its remaining 567 stores.

Two Virginians are members of the subcommittee—Rep. Robert C. Scott, D-3rd, and Rep. J. Randy Forbes, R-4th.

Robert M. Lawless, a professor specializing in bankruptcy law at the University of Illinois law school, said the changes to the bankruptcy code in 2005 have hurt companies as they try to restructure under court protection.

“The 2005 law had a very big impact on business bankruptcies, because they were more pro-creditor,“ he said.

Among the changes hurting businesses is the way leases are handled.

Before 2005, a company had 60 days to decide whether it wanted to keep or reject a lease. But the bankruptcy court judge had the discretion to extend the period for an indefinite amount of time.

The law now gives a company 120 days to make a decision, but the judge can extend it for only an additional 90 days.

This hurts retailers such as Circuit City, Lawless said, because it forces them to make quick decisions that are irrevocable.

Also hurting chains is a measure that requires companies to pay security deposits for utility services after filing for bankruptcy protection, Lawless said.

The law also limits the amount of time companies have to file a reorganization plan, which spells out how it will pay its creditors.

Businesses now have 18 months to file a plan with the court. Before, the time could have been extended for years.

Still, Lawless said he can’t blame the changes for causing the liquidation of Circuit City or any other retailers recently.

“There are certainly more liquidations; some are due to 2005, but a lot aren’t,“ he said.