New Bankruptcy Bill Would Limit Ch. 11 Venue Options to Principal Place of Business

A new bankruptcy bill introduced into the U.S. Senate would curb “forum shopping” in Ch. 11 cases by tightening the wide range of allowable bankruptcy venue options currently available. These court venue options, including a place of incorporation, principal place of business and assets, or where an affiliate has filed a case under Ch. 11, have led to an increase in companies filing outside their home states or principal place of business, concentrating cases into a few districts like Delaware and New York, the bill states.

NACM is among a group of associations that support the bill, including the Commercial Law League. NACM’s members have for years consistently raised concerns about the venue issue and asserted that where a case is filed can significantly impact its outcome, said NACM National Chairman Kenny Wine, CCE. “Selecting a venue outside of the debtor’s primary location increases the cost of participation by the debtor, adding travel and lodging expenses to the case—costs many American small businesses can ill afford, especially when a key customer has not paid them,” he said. “We believe that by requiring the debtor to file in the jurisdiction of its primary place of business or its principle assets, the bankruptcy process will be fairer for all participants.”

Senate bill S. 2282 was introduced by Senators John Cornyn (R-TX) and Elizabeth Warren (D-MA) Jan. 8. The bill would “ensure corporations file for bankruptcy in districts that allow small businesses, employees, retirees, creditors and other stakeholders to fully participate in cases that will have tremendous impacts on their lives,” the Senators said in a joint statement.

“Closing the loophole that allows corporations to ‘forum shop’ for districts sympathetic to their interests will strengthen the integrity of the bankruptcy system and build public confidence,” Sen. Cornyn said.

Sen. Warren said: “I’m glad to work with Sen. Cornyn to prevent big companies from cherry-picking courts that they think will rule in their favor and to crack down on this corporate abuse of our nation’s bankruptcy laws.”

Delaware lawmakers are not pleased with the bill and responded in their own joint statement. “Denying American businesses the ability to file for bankruptcy in the courts of their choice would not only hurt Delaware’s economy, but also hurt businesses of all sizes and the national economy as a whole,” said Delaware Governor John Carney and Delaware’s Congressional Delegation. “Experienced bankruptcy judges are critical to ensuring that companies can restructure in a way that saves jobs and preserves value.”

Corporate debtors would no longer be permitted to file simply on the basis of their state of incorporation and would stop debtors from filing for bankruptcy in another district just because an affiliate of the debtor has filed there.

The bill would also require that courts transfer or dismiss cases filed in the wrong district.

– Nicholas Stern, managing editor