A Chapter 11 Diaspora? House Judiciary Committee Considers Chapter 11 Venue Reform

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The House Judiciary Committee recently held a hearing to consider an amendment to the venue provisions of the Bankruptcy Code proposed by the Committee’s Chairman that would require corporations to file voluntary chapter 11 petitions in the district where they maintain their principal place of business or have their principal assets. Under the current bankruptcy venue provisions of the U.S. Code, a debtor corporation can file its bankruptcy case in the state where it is incorporated, where it has its principal assets, or where it is headquartered. A corporation can also file a chapter 11 case in a venue where its corporate affiliate’s case is already pending. Utilizing these rules, many large chapter 11 cases are commenced in Delaware and New York, despite the fact that the corporate debtor has little ties to those states. For example, Enron – a Texas-based company – filed a bankruptcy for a small New York subsidiary in the Southern District of New York. Shortly thereafter, Enron commenced the bankruptcy case for the main company, and used the venue provisions to bootstrap this case with its New York case, which allowed it to heard along with the subsidiary's case in New York. A more recent example is the Fremont, CAbased Solyndra LLC, which filed a voluntary chapter 11 petition in Delaware, the state of its incorporation.

H.R. 2533, the "Chapter 11 Bankruptcy Venue Reform Act of 2011," is designed to change the venue rules to prevent the type of forum-shopping that occurred in the Enron case. The bill would amend 28 U.S.C. § 1408 by including the following provisions...

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