The Boy Scouts of America (BSA) filed for bankruptcy protection in February 2020 to relieve the legal pressure it faces from litigation started by sexual abuse victims.
The bankruptcy means that a judge will now place a ceiling on the amount that the BSA will pay to each victim. That means the proceedings could limit the number of assets that get awarded to victims from the accounts of local councils.
A total of 275 lawsuits are currently pending for this century-old organization. An expectation that several thousand additional claims could get filed is considered reasonable because new state laws allow victims to bring cases to the court regardless of when the misconduct happened.
Chapter 11 Allows Scouting Programs to Continue
The BSA says that it intends to use the Chapter 11 bankruptcy process to create a trust that provides compensation to victims. Although the court proceedings will continue, scouting programs will not get interrupted because of this process.
BSA has explored the possibility of filing for bankruptcy since December 2018. It hired a law firm at the time to look at the advantages and disadvantages of Chapter 11 at that time.
The structure of a Chapter 11 bankruptcy allows the organization to create a reorganization plan that keeps the business alive. Creditors still get paid, but the terms of the repayment get renegotiated under the court’s supervision.
BSA made the filing in Delaware.
BSA’s Potential Liability Is Massive
A case in Portland that involved sexual abuse allegations against the Boy Scouts of America resulted in a verdict of nearly $20 million.
Up until the past decade, the BSA had insurance that would cover claims of sexual abuse. Carriers started withdrawing this coverage protection because they argue that the organization knew about the abuse and didn’t tell anyone.
That means the BSA now faces the prospect of funding settlements and litigation internally.
Even with those challenges, the organization had assets in 2018 that totaled $1.4 billion. Another $1.9 billion is in the accounts of local troops. That means the organization is solvent, even when facing the potential surge of upcoming litigation.
BSA likely hopes that the Chapter 11 filing shields the assets of local councils in the same way that the Catholic dioceses could protect parishes and properties from claims.
This case is a warning for any organization that isn’t taking reports of abuse seriously. If the largest youth organization in the U.S. can get crippled because they did nothing, then it can happen to anyone.