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A New Legislative Attempt to Move Bankruptcy Cases Out of Delaware

September 27, 2019

On September 19, 2019, a bill was introduced in the House of Representatives to amend Title 28 of the United States Code, to modify venue requirements relating to bankruptcy proceedings. This bill, introduced by a bipartisan group of House lawmakers, aims to shift the burden of Chapter 11 bankruptcy filings in states like Delaware and New York to the states where companies conduct most of their business. Under the current law, companies may file for bankruptcy protection either in the state in which they are incorporated or in a venue where they have a smaller subsidiary. The bill, entitled the Bankruptcy Venue Reform Act of 2019, H.R. 4421 would force companies to file for bankruptcy in the district where their principal place of business is located. Notably, the proposed legislation would alter Delaware’s prime position as a venue of choice for companies that are incorporated in the state, but do not operate there. The proposed bill is in response to concerns that allowing companies to choose the venue of bankruptcy filings in Delaware and New York discourages stakeholders from being heard and lowers public confidence in the judicial process. House lawmakers in support of the latest bill said the legislation would ensure “employees, small businesses, and local communities that are most impacted by a Chapter 11 bankruptcy are able to fully and fairly participate in proceedings.”

 

Similar legislation was introduced in the Senate in 2017 and 2018, but had little success. Opponents of the previous proposals argued they were not only bad for business, but bad for Delaware. Delaware is a popular location for many American companies to incorporate, and because of this, Delaware has had the unique opportunity and experience to develop expertise in areas affecting businesses of all sizes, including bankruptcy. Additionally, they argue judges in these venues have more experience with complex bankruptcy matters and are better equipped to handle the complicated issues bankrupt companies face. According to Delaware Governor, John Carney, “[c]ompanies from around the country choose to incorporate in Delaware specifically because of the expertise and experience of our judges, attorneys, and business leaders.” If the proposed legislation does move forward, it would alter the cost and efficiency of the current system and many businesses would have to make significant changes to their bankruptcy strategy.

 

Lawmakers Propose Bill On Bankruptcy Case Location​

Curran Antonelli represents a broad range of businesses and corporate entities, private equity funds, as well as governmental agencies and other interested parties in all phases of the bankruptcy process and in bankruptcy related transactions and litigation.  As advocates and trusted business advisors, our well-established foundation of knowledge and understanding of our clients’ business interests, enables our attorneys to deliver unparalleled individualized attention to our clients of all sizes with their litigation and corporate transactional needs.

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