Will This be the Year for Chapter 11 Venue Reform?

More than a decade after Democrats and Republicans first united to introduce bankruptcy venue reform legislation, Congress is still trying to make headway on the issue.

Last month, Congresswoman Zoe Lofgren (D-CA) and Congressman Ken Buck (R-CO) reintroduced H.R. 1017, the Bankruptcy Venue Reform Act, legislation aimed at curtailing bankruptcy “venue shopping” by requiring that bankruptcy proceedings take place in the venue in which the entity has its principal place of business or the majority of its assets.

The original bill, introduced on July 14, 2011 by former Members of Congress Lamar Smith (R-TX) and John Conyers Jr. (D-MI), who led the House Judiciary Committee at the time, looked promising. In addition to banking sponsored by the leaders of the Committee it needed to pass, it was also co-sponsored by the leaders of the Subcommittee.

Congressman Smith was personally invested in the issue because of a very publicly notorious corporate bankruptcy—Enron. Based in Houston, Texas, with more than 7,500 employees and $60 billion in assets, Enron took advantage of current bankruptcy venue laws to file for bankruptcy more than 1,500 miles away in New York. To `then-Chair Lamar Smith, this denied thousands of Texans access to the bankruptcy proceedings, harming Texas small businesses and thousands of former Enron employees alike.

For Congressman Conyers, the story was very similar. In 2009, Chrysler and General Motors, both based in Congressman Conyers’ hometown of Detroit, filed bankruptcy in New York. He saw his constituents lose their jobs and their entire retirement, forced to choose between traveling to New York to present their perspective to the court or save money, stay home and hope for the best.

Less than two months after introduction, the bill had its first Committee hearing in the House Judiciary Subcommittee on Courts, Commercial and Administrative Law. At the hearing, the majority of expert witnesses testified in strong support of the legislation, fully debunking the arguments presented by the sole opposition witness that the New York and Delaware courts have greater expertise and are better equipped to handle bankruptcy cases. NACM also submitted a letter for the record strongly in support of the bill.

Unfortunately, that is where all progress halted on the bill. The political reality of this issue is that while there is significant bipartisan support for fixing the broken rules that allow corporations to venue shop, there also is significant and influential opposition. The current Majority Leader in the Senate, Chuck Schumer, represents the State of New York, a state which benefits significantly from the status quo. Additionally, large corporations with a significant lobbying and political presence have a strong incentive to kill this bill and similar efforts.

Overcoming these hurdles and getting the bill passed this Congress is an uphill battle, but it is one we can win. Ultimately, politics is local, and depriving smaller debtors the opportunity to meaningfully participate in the bankruptcy process has significant local consequences. So, remind your Member of Congress that bankruptcy venue shopping is hurting their district and their constituents, and urge them to support H.R. 1017.


-Ash Arnett, PACE Government Affairs, NACM’s Washington Representative