ORANGE COUNTY IN BANKRUPTCY : Checks Will Clear, Says Counsel on Bankruptcy : Fallout: All essential services and all the things that citizens and businesses expect are going to be provided, lawyer says.

Sitting at the center of the largest government bankruptcy crisis in American history is a 36-year-old attorney with a Harvard law degree.

Bruce Bennett has spent his entire career working for Stutman, Treister & Glatt, a small Los Angeles firm known nationwide as leaders in bankruptcy cases. Reared in a New York suburb, Bennett went to Brown University before Harvard and has lived in Los Angeles since 1982.

Bennett started Wednesday before sunrise. He spent most of the day with a phone at his ear, talking to politicians and business people around the world who have a stake in Orange County’s bankruptcy crisis, and was shuttled from briefing to briefing in Orange County’s Hall of Administration.

In between, he answered a few questions about the Chapter 9 filing.

What is the county’s current cash flow situation?

The checks that are out there now are going to clear. The employees are going to get their checks on time, and they’re going to clear. The retirees are going to be paid, and their checks are going to clear. The vendors that are rendering services now are going to continue to be paid.

All essential services, and all the things that citizens expect and that businesses expect, are going to continue to be provided. All of the ordinary-course activities of the county are going to continue. That means people are going to have to be paid to do (them).

Funds from bond issues for the widening of Interstate 5, the building of the San Joaquin Hills tollway and other major projects are tied up in the fund. What will happen to them?

If the money is invested in the fund, right now, for those large projects, for the time being, there won’t be a distribution.

How long is ‘the time being?’

I’m not sure.

What happens to incoming tax revenue?

It will all be collected and used for appropriate governmental purposes.

In terms of court hearings, what is the next step?

There are no hearings presently scheduled. There will be hearings. As of now I can’t tell you which one will be next, what it will be about or when it will be. I really can’t point to any particular thing that is the next step.

Obviously, we’re devoting all of our efforts right now to finding sensible solutions for the problems (with the investment portfolio). That’s the most important thing that I’m working on, and that’s the most important thing that everybody else is working on. The highest priority is (developing a) plan to get the county out (of the investment crisis).

What are the differences between Chapter 9 and Chapter 11 bankruptcy filings in terms of payouts from the fund?

Under Chapter 9, the debtor--the county--retains control of all of its assets, retains its governmental powers and retains other things. There are a large number of important and fundamental differences.

Is there a creditors’ committee formed under Chapter 9 like there is in Chapter 11?

Yes, there is a creditors’ committee. It’s up to the United States trustee, but it will generally consist of five to 10 of the largest creditors. The U.S. trustee has some discretion to include a smaller creditor if they think it will provide a different perspective, but generally it’s the largest creditors.

How does the filing affect the county investment fund? Does the fund stop making interest payments to investors? Can collateral calls be made on the fund by its lenders?

As of now, by and large, the bulk of the lenders are not attempting to liquidate the collateral behind repurchase agreements, and they are not doing so because of . . . an automatic stay that is imposed by the bankruptcy filing. For the time being, we’ve stopped making payments, other than the payments that are necessary to deal with payroll and other essential requirements of the participants.

Does the bankruptcy filing enable the county to raise taxes or other revenues that otherwise would have been prohibited by state law?

It’s a very premature issue. Nothing like that is even contemplated yet.