Bankruptcy Venue Reform Bill Introduced

On Jan 8, 2018, Senators John Cornyn (R-TX) and Elizabeth Warren (D-MA) introduced the Bankruptcy Venue Reform Act of 2018, which is designed to prevent forum shopping in Chapter 11 bankruptcy cases, a practice that has resulted in a concentration of bankruptcy cases in a few districts.

The stated purpose of the bill is to force individual debtors and corporations to file Chapter 11 bankruptcy petitions in their true home districts to allow small businesses, employees, retirees, creditors, and other stakeholders to fully participate in these cases.

According to Senator Cornyn:

“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.” Senator Warren added that “workers, creditors, and consumers lose when corporations manipulate the system to file for bankruptcy wherever they please, I'm glad to work with Senator 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.”

The Bankruptcy Venue Reform Act would require individual Chapter 11 debtors to file for bankruptcy in the district where their domicile, residence, or principal assets in the United States is located. In the case of corporate Chapter 11 debtors, they would have to file in the district where their principal assets or principal place of business in the United States is located. They would no longer be permitted to file simply on the basis of their state of incorporation. It would also prevent debtors from filing for bankruptcy in another district simply because an affiliate of the debtor has filed there, and require courts to transfer or dismiss cases filed in the wrong district.

Predictably, the introduction of the Bankruptcy Venue Reform Act was not well received by legislators in the state of Delaware. Governor John Carney, U.S. Senators Tom Carper and Chris Coons (both D-DE) and Representative Lisa Blunt Rochester (D-DE), issued a statement declaring:

“Many American companies, large and small, choose to incorporate in Delaware because of the expertise and experience of our judges, attorneys, and business leaders. 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. This is a misguided policy, and we strongly oppose it.

Our economy thrives when the bankruptcy system is fair, predictable, and efficient. Experienced bankruptcy judges are critical to ensuring that companies can restructure in a way that saves jobs and preserves value. Scrapping the venue laws that have been in place for decades and replacing them with restrictions flies in the face of well-settled principles of corporate law, threatens jobs, and hurts our economy.”

The text of the Bankruptcy Venue Reform Act of 2018 is available at http://bit.ly/2D1trgA.

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Adam Schlagman is Editor-in-Chief of The Bankruptcy Strategist.