On September 8, 2011, the Subcommittee on Courts, Commercial and Administrative Law of the House Judiciary Committee heard testimony from four experts including Chief Judge Frank J. Bailey of the United States Bankruptcy Court for the District of Massachusetts on a bill pending before Congress to alter venue requirements in chapter 11 bankruptcy cases. The bill, officially known as the Chapter 11 Bankruptcy Venue Reform Act of 2011, H.R. 2533 (the “Bill”), was introduced to the House on July 14, 2011 and would implement changes to the current venue rules for commencing Chapter 11 bankruptcy cases.
The Law and Public Policy Committee of the Bankruptcy Law section has prepared a brief Overview of the Bill which can be found below the jump. The full text of the Bill can be found by clicking here. Transcripts of the testimony of the witnesses before the subcommittee (including Chief Judge Bailey) can be accessed by clicking here.
The Bankruptcy Law Section will continue to monitor progress of the Bill and provide periodic updates to this blog.
Overview of the Chapter 11 Bankruptcy Venue Reform Act of 2011, H.R. 2533
On July 14, 2011, Representatives Lamar Smith of Texas, John Conyers, Jr. of Michigan, Howard Coble of North Carolina, and Steve Cohen of Tennessee introduced the Chapter 11 Bankruptcy Venue Reform Act of 2011, H.R. 2533 (the “Bill”). The Bill proposes changes to the current venue rules for commencing bankruptcy cases in order to limit “forum-shopping” by potential debtors. The Bill has been referred to the House Committee on the Judiciary. On September 8, 2011, the Subcommittee on Courts, Commercial and Administrative Law of the House Judiciary Committee heard testimony from four experts including Chief Judge Frank J. Bailey of the United States Bankruptcy Court for the District of Massachusetts. Below is an overview of the present provision on bankruptcy venue and the changes proposed by the Bill.
Existing Venue Provision Under 28 U.S.C. § 1408
Section 1408 of Title 28 the United States Code governs venue in chapter 11 cases. As presently written, Section 1408 provides that a debtor may file its bankruptcy case (i) in any district court where the debtor’s domicile, residence, principal place of business, or principal assets are located, or (ii) in any district court where an affiliate, general partner, or partnership of the debtor has a case pending. 28 U.S.C. § 1408. Pursuant to Section 1408, many companies are eligible to file their bankruptcy cases in either the Southern District of New York or the District of Delaware because they are either incorporated in those jurisdictions or follow affiliates which are eligible to file there.
Changes Proposed by H.R. 2533
The Bill contemplates several changes to the current venue provision under Section 1408 in an attempt to promote fairness by ensuring maximum participation by stakeholders in a bankruptcy case. Specifically, the Bill revises Section 1408 as follows:
(b) [a] case under chapter 11 of title 11 in which the person that is the subject of the case is a corporation may be commenced only in the district court for the district—
(1) in which the principal place of business in the United States, or principal assets in the United States, of such corporation have been located for 1 year immediately preceding such commencement, or for a longer portion of such 1-year period than the principal place of business in the United States, or principal assets in the United States, of such corporation were located in any other district; or
(2) in which there is pending a case under chapter 11 of title 11 concerning an affiliate of such corporation, if the affiliate in such pending case directly or indirectly owns, controls, or holds with power to vote more than 50 percent of the outstanding voting securities of such corporation.”
By narrowing the scope of Section 1408 to require a chapter 11 debtor to file a bankruptcy petition in the district where either the debtor’s principal place of business or principal assets are located, the Bill seeks to eliminate chapter 11 filings in jurisdictions where a particular debtor has little or no presence.