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.