Are the Boy Scouts Infringing on their Honor Code by Declaring Bankruptcy under Chapter 11?

Boy Scouts of America is an organization that has built its reputation by maintaining a clear moral code. They have sought refuge in bankruptcy court, where promises can be broken.

Critics of Tuesday’s Boy Scouts Chapter 11 bankruptcy filing claim it is a dishonorable route for a nonprofit that proposes to pay victims of sexual abuse less money than they would receive outside of bankruptcy. It is unclear how much less.

Defenders claim it is an honorable step by the Boy Scouts to admit its mistakes and find a way to compensate victims, and stabilize the organization’s finances.

It is widely accepted that bankruptcy presents a moral dilemma that’s especially difficult for a group expecting to face approximately 1,700 sexual abuse claims dating back many decades. However, all victims whose claims are vetted by the courts would be eligible to receive a portion of the settlement funds.

As in USA Gymnastics or Catholic Church dioceses, bankruptcy law allows debtors to avoid paying their full debts.

Based on each entity’s assets and debts, the amount paid to abuse victims when an organization files for bankruptcy depends on how much they have. For example, the bankruptcy of USA Gymnastics was sued by over 500 women who claimed they were abused and cheated by Larry Nassar. As a result, the organization proposed to pay $215 million to victims.

John Manly, an attorney representing many victims in the case, criticized the USA Gymnastics offer. He estimated that it would be approximately $250,000 to $300,000.

BankruptcyHQ spoke to Manly in January, saying that the proposal was “one punch to the gut.” He said that it wouldn’t cover the therapy these women require, likely for the rest of their lives, as well as the pain and emotional toll.

Is it ethically acceptable that Boy Scouts pledge to “do my duty…help other people at all times”? And “keep me morally straight” to avoid paying full debts.

Pamela Foohey, an associate professor at Indiana University Maurer School of Law who has studied bankruptcies involving abusive cases, said, “Bankruptcy could be a place of reckoning” “People won’t get paid if there isn’t enough money.”

Boy Scouts propose victims compensation trust

The bankruptcy process forces the debtor to assess its assets and use them to try to repay its creditors in the best interest. While trying to stay afloat, it also forces the debtor to assess its assets. Organizations like Boy Scouts have the opportunity to reorganize themselves through bankruptcy.

What cost does a group that believes in treating people with dignity have to pay?

Peter Jaworski, a Georgetown University professor of ethics at the McDonough School of Business, said that “they have an internal code that dictates how you behave in certain ways – among them is keeping your promises.” “For the reasons that they have publicly stated they are filing for bankruptcy it seems to be a violation the Boy Scouts code.”

Boy Scouts reported that it has paid $150 million in legal costs and settlements between 2017 and 2019 and plans to establish a Victims Compensation Trust using the bankruptcy process. This trust will pay victims who file claims before an unspecified date.

New York State Senator Brad Hoylman – a former Eagle Scout, a Democrat who co-authored a law to help survivors of sexual abuse – slammed the bankruptcy filing.

“As a Scout Eagle Scout, I learned civic responsibility. It’s very disappointing to see the Boy Scouts adopt this approach, which will protect themselves from that very responsibility,” Hoylman said. In addition, Hoylman’s law allows adult survivors of sexual abuse to file lawsuits within a one-year period that was previously beyond the statute of limitations.

In response to BankruptcyHQ’s questions, the Boy Scouts stated that their decision to file Chapter 11 was based on Scout Oaths and Law. Boy Scouts of America believes that our organization has a moral and social responsibility to compensate all Scouting victims. As a result, the mission must be carried out for many years.

The Boy Scouts could have been bankrupted without bankruptcy. However, the cost of defending the organization from myriad lawsuits was mounting up and could lead to its financial collapse.

Foohey of Indiana stated that bankruptcy could allow victims of sexual abuse to get paid and give them a voice in this process rather than waiting indefinitely for the resolution of their cases.

She said that it could be a positive thing for victims in this sense.

She said, “It is not dishonorable for a business to file bankruptcy.” “I think it’s honorable for a business in certain circumstances to say that we need all meet and discuss the extent of insurance coverage, the extent (of), these suits, how wide they are spread, and let’s also be honest about our assets and what we can afford.”

Abused Scouting is a group representing some victims. They stated in a statement that they believe the case “presents an occasion for exploring a solution that can” pay victims and allow the organization to continue to exist.

Pfau Cochran Vertetis Amala is a law firm representing more than 300 victims of sexual abuse by Scout leaders. It said that bankruptcy is generally a good development for survivors because it focuses on the identification of Boy Scouts assets and then decides on a fair way to share their assets among the people who have filed claims.”

National Boy Scouts aims to protect local councils

However, it is becoming increasingly difficult to determine the Boy Scouts’ willingness to pay.

The Boy Scouts have more than $1B in assets, including the Philmont Scout Ranch located in northeastern New Mexico’s mountain wilderness. Unfortunately, they could be forced to dispose of some of their most valuable treasures to pay off their victims.

The organization proposed a restructuring plan to protect the assets of local councils from being sold off to creditors. Although the exact value of the assets of local councils is not known, it is believed to be greater than that of the assets of the national organization.

The victim’s attorneys will argue that the national organization should not have the right to protect local councils.

Hoylman stated that he found it very objectionable that Boy Scouts, despite all the harm done to innocent young people by the organization, now double down and limit potential awards for survivors.

The ethical question is whether Boy Scouts should continue or be forced to dissolve to repay their creditors.

Jaworski, a business ethicist, stated that it would be a “genuine lose to lose,” an organization that “many people had benefited from.”

However, legal experts believe that local councils can form a new entity to supervise them if the national organization is no longer available.

Jaworski stated that the abuses have lasted for decades, and the organization has not lived up to the basic expectations of all parents who signed their children up for Scouts. It’s so egregious that it may be right for Boy Scouts to go extinct.



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