Chapter 11 Venue: The Interest Of Justice

Author:Mr Peter Blain
Profession:Reinhart Boerner Van Deuren S.C.
 
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Venue of Chapter 11 cases is governed by section 1408 of title 28, which provides in part that a case under the Bankruptcy Code (11 U.S.C. § 101 et seq) may be commenced in the district in which the person's "domicile, residence, principal place of business... or principal asset" are located, or "in which there is a pending case ...of such person's affiliate." In In re Ocean Properties of Delaware, Inc., 95 B.R. 304 (Bankr. D. Del. 1988), the court determined that the state of incorporation is sufficient domicile for venue, notwithstanding where the debtor maintains its principal place of business or its principal assets. After Ocean Properties and similar decisions, a majority of the largest and most complex business entities in the country used the state of incorporation basis for venue to file Chapter 11 cases in the Southern District of New York ("SDNY") or the District of Delaware ("Delaware"). Those that support this trend argue that concentrating the adjudication of complex Chapter 11's in these districts enhances efficiency, accessibility, predictability and takes advantage of those courts' superior knowledge of corporate law principles. The courts in Delaware and the SDNY have developed critical special expertise that is not found in bankruptcy courts elsewhere, and this expertise, they argue, enhances the prospect for success. See generally Harvey R. Miller, Chapter 11 Reorganization Cases and the Delaware Myth, 55 Vand. L. Rev. 1987 (2002). Critics of this trend argue that courts in Delaware and the SDNY entice companies to file there because those courts employ reorganisation requirements less stringently. As a consequence, companies confirming reorganisation plans in those districts are more likely to fail post-Chapter 11 than are companies which are reorganised in other jurisdictions. See Lynn M. LoPucki & Sara D. Kalin, The Failure of Public Company Bankruptcies in Delaware and New York: Empirical Evidence of a "Race to the Bottom," 54 Vand. L. Rev. 231 (2001). Bankruptcy judges in other jurisdictions, say these critics, are just as able as those in Delaware and New York, and statistically, they have a better overall track record of success. In addition, those courts are more accessible to local creditors, including employees and retirees, and those creditors are more likely to fully participate in a case filed where the business is located. Under section 1412 of title 28, a court may transfer venue to a...

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