Bankruptcy court ‘shopping’ targeted by bipartisan bill

Companies facing bankruptcy would face another challenge under a bipartisan US House proposal – less flexibility in choosing where to file Chapter 11.

Legislation introduced Monday by Democrat Zoe Lofgren and Republican Ken Buck targets “shopping for places” and would require bankruptcy proceedings to be held where a company’s head office or most important asset is located. The bill would prevent companies from “running away to court across the country,” Colorado’s Buck said in a statement.

Congress has already tried to tackle the problem, saying companies are trying to find amicable courts. Republican Senator John Cornyn and Democratic Senator Elizabeth Warren have sought to target on-site shopping in 2018, but for now, Lofgren and Buck’s bill does not have a companion in the Senate, which limits its prospects. And, President Joe Biden opposed similar measures when he was a senator representing Delaware.

“The bill would reverse the spectacular growth of the Delaware bankruptcy court and negatively affect the Delaware economy,” said Lynn LoPucki, professor of law at the University of California at Los Angeles.

Rep. Ken Buck, R-Colo., Asks questions during a House Judiciary Committee hearing on Capitol Hill, Wednesday, June 10, 2020, in Washington.

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

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