Bankruptcy Court ‘Venue Shopping’ Targeted by Bipartisan Bill

(Bloomberg) -- Companies facing bankruptcy would face another challenge under a bipartisan proposal in the U.S. House -- less flexibility in choosing where to file Chapter 11.

Legislation introduced Monday by Democrat Zoe Lofgren and Republican Ken Buck targets “venue shopping” and would require bankruptcy proceedings to take place where a company’s headquarters or most significant asset is located. The bill would prevent companies from “running off to a court across the country,” Colorado’s Buck said in a statement.

Congress has attempted to tackle the issue before, saying companies try to find friendly courts. Republican Senator John Cornyn and Democratic Senator Elizabeth Warren sought to target venue shopping in 2018 but as of now Lofgren and Buck’s bill doesn’t have a Senate companion, limiting its prospects. And, President Joe Biden has opposed similar moves when he was a senator representing Delaware.

“The bill would reverse the dramatic growth of the Delaware bankruptcy court and adversely affect Delaware’s economy,” said Lynn LoPucki, a law professor at the University of California in Los Angeles.

Critics say companies prefer districts like New York and Delaware because judges there favor corporations over unions, retirees and small-time creditors. Since 2000, 71% of public companies with at least $100 million of assets filed for bankruptcy in a district other than one closest to their headquarters, according to a database maintained by LoPucki. 60% filed in Delaware and the Southern District of New York.

Last year, the Southern District of Texas was the most popular venue, with companies such as J.C. Penney Co. filing there, according to the database.

“Justice is best served when corporate bankruptcies are adjudicated locally, with convenient court access for employees, retirees, and local creditors and a judge who knows the affected community,” Lofgren said.

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