Cornyn & Warren Introduce the Bankruptcy Venue Reform Act of 2017

Earlier today, Senators John Cornyn (R-TX) and Elizabeth Warren (D-MA) introduced the Bankruptcy Venue Reform Act of 2017. The bill would require companies to seek bankruptcy protection where they have their principal assets or their principal executive offices. And it would eliminate the possibility of filing where they are incorporated and restrict their ability to file where an affiliate’s case is pending. The end result? The bill would effectively limit access to popular bankruptcy courts in New York and Delaware. If passed, this would represent a seismic shift for corporate bankruptcies.

The Rationale for the Bill: Preventing Corporate Abuse

Sens. Cornyn and Warren said in a joint statement that the bill is meant to strengthen the integrity of the bankruptcy system and build public confidence by preventing companies from “shopping” for favorable courts. The bill is also intended to allow employees at bankrupt companies, small business creditors, and others to participate in cases that will have tremendous impacts on their lives.

“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.” -Sen. Warren 

The bill is endorsed by the Commercial Law League, Texas Bankruptcy Bar Association, Texas Hotel & Lodging Association, Boston Bar Association, Ag & Business Legal Strategies, and… the Iowa Bankers Association.

Another Viewpoint: Litigation at the Speed of Business

Proponents of the current system, however, argue that experienced courts and judges can better handle complicated issues in a big bankruptcy case. This leads to greater predictability, thus reducing the cost, risk and delay associated with bankruptcy filings. And those benefits, in turn, help to save businesses, preserve jobs, and reduce creditor losses.

The bill faces opposition from Gov. Carney and Delaware’s three federal lawmakers, who said in their own joint-statement that more than two-thirds of U.S. businesses in the Fortune 500 incorporate in Delaware to gain access to “Delaware’s world-class bench and bar with exceptional expertise in corporate legal issues, including bankruptcy.”

“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. 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.”

This is something I can now begin to speak to from some level of personal experience. After attending the Pre-Admission Conference for new Delaware lawyers held by the Delaware Supreme Court, two themes stood out. An unwavering insistence on civility and the highest ethical and professional standards. And an uncompromising commitment to delivering “litigation at the speed of business.”

Further Reading: Full Text of the Bill

The bill’s complete text is available here.

Mette K.

The CLLA Sets Its Sights on Bankruptcy Venue Rules… Again

I have barely unpacked my suitcases, and yesterday the Commercial Law League of America (CLLA) announced that a bankruptcy venue reform bill will be proposed this week in the U.S. Senate. The bill will to seek to change the venue rules for filing Chapter 11 business cases. If you want to view the CLAA’s press release, it is available here. (The CLLA previously supported S.314 (109th Congress 2005-2006) and H.R.2533 (112th Congress 2011-2012), which were not enacted.)

A Very Old Debate

The venue rules were already a long-standing topic of debate when I began practicing law over 20 years ago. In fact, the argument has been ongoing for roughly 40 years. And it has not dramatically changed over the decades. Rather, it is a debate that periodically ebbs and flows in public discourse.

If you’re a newcomer to the conversation, the gist of the debate is this.

  • On one hand, some people argue that current law gives debtors too much leeway in deciding where to file bankruptcy, allowing them to “shop” for favorable venues.
  • On the other hand, some people argue that existing venue laws work, allowing debtors the flexibility to choose a venue that provides them with the best opportunity to reorganize and maximize estate value.

The Significance of the Venue Debate

Why does this matter? Because the District of Delaware and the Southern District of New York attract the largest share of Chapter 11 filings. In fact, they have attracted more than 75% of large public company filings since 2010.

What to Expect Next?

The bill was introduced on January 8, 2017.  More information is available in my follow up post.

Stayed tuned as I track the proposed bill and provide updates on the latest developments.

 

Mette K.

Bankruptcy Judges, Fish & Farmers

Fourteen temporary bankruptcy judgeships have been extended and four new ones have been authorized nationwide.  This is at least one piece of generally positive legislative news that bankruptcy practitioners should be able to agree on!

Temporary Judges Added to Delaware, Florida, and Michigan

The legislation, H.R. 2266, was included in the $36.5 billion disaster aid bill signed into law on October 26th. It incorporated a version of the Bankruptcy Judgeship Act of 2017 introduced by Rep. John Conyers (D) and Chairman Bob Goodlatte (R).

The bill, as enacted, reauthorizes 14 temporary bankruptcy judgeships in Delaware, Florida, Puerto Rico, Maryland, Michigan, Virginia, Nevada, and North, and authorizes the appointment of four additional temporary bankruptcy judges in Delaware, Florida, and Michigan.

While bankruptcy filings have declined nationwide in recent years, the effected districts have seen a 55% weighted increase in case filings since 2005. The federal Judicial Conference wrote to congressional leaders in April saying that federal bankruptcy courts in Delaware and eight other districts would face a ‘debilitating workload crisis” if lawmakers didn’t add judgeships and permitted the 14 temporary judgeships to lapse. (Original versions of the legislation had hoped not only to add four new, permanent judgeships but also to make the temporary judgeships permanent.)

Quarterly Fees to Increase to Fund the Judgeships

The measure increases the U.S. Trustee’s quarterly fees for large Chapter 11 bankruptcy cases to pay for the additional judgeships.  Specifically, if the balance in the U.S. Trustee System Fund is less than $200 million, then a debtor with total quarterly disbursements of $1 million or more must pay a quarterly fee equal to $250,000 or 1% of disbursements, whichever is less.

What About those Fish and Farm Tax Claims?!

The legislation also amends Bankruptcy Code § 1232 to add tax claims by the IRS resulting from the sale, transfer, exchange, or disposition of farming property in cases under Chapter 12 (e.g., family farmer or fisherman reorganizations). Such a claim that arises before a debtor’s discharge, regardless of whether the claim is pre-petition or post-petition, must be treated as a pre-petition claim, is not entitled to priority status, must be provided for under the bankruptcy plan, and is dischargeable.

Trivia Quiz… This $20 Cabela’s Gift Card Could Be Yours!

I’m offering a $20 Cabel’as gift card to the first person who can explain the connection between the fish and farming amendment and the rest of the bill!

Mette K.