NCJ Number
111812
Journal
Vanderbilt Law Review Volume: 41 Issue: 2 Dated: (March 1988) Pages: 317-342
Date Published
1988
Length
26 pages
Annotation
A critical issue that governments and private vendors must consider when planning and contracting for a private company's correctional services is the effect on the contract if the company subsequently files for bankruptcy under Chapter 7.
Abstract
Section 365 of the Bankruptcy Code sets forth the rights and responsibilities of the contracting parties to an executory contract, and, thus, governs contract prison services. Under the law, the power of the debtor to reject, assume, or assign an executory contract allows for broad control by the debtor over the future relationship of the parties. This general rule is subject to limitations, but the debtor's powers far exceed the protections afforded the State: rejection of the contract can occur without court approval, other factors outside those specified in a termination clause may be used to terminate the contract, the debtor may assign the contract to a third party, and there is no definition for adequate assurance of future performance of the contract in the event it is assigned. Finally, court interpretations of some of the provisions have often created confusion. Given the number of unanswered issues regarding privatization, a State should not privatize without grasping the magnitude and complexity of these problems. Special-interest legislation to amend the code is a potential avenue for resolving bankruptcy issues in the privatization of corrections. 158 footnotes.