Attorney General Curtis Hill today urged Congress to enact legislation aimed at protecting consumers and states affected by lax corporate bankruptcy rules.
Attorney General Hill joined a bipartisan coalition of 42 state and territory attorneys general in supporting H.R. 4421, also known as the Bankruptcy Venue Reform Act of 2019. The legislation would prevent a corporation from filing for bankruptcy in a district it believes would be more favorable on issues to the debtor’s advantage when the corporation’s principal place of business or assets are located in a different district.
This practice, known as “forum shopping,†imposes a burden on states and other creditors who may have to travel and incur significant expenses to pursue their claims.
Under current U.S. law, individuals must file in the district in which they have resided for a majority of the 180 days prior to filing. However, corporations are permitted to pursue bankruptcy in any district in which they have a minor affiliated interest, no matter how small or recently created. This allows cases to be placed in some of the most expensive legal markets in the country, and it contributes to the ever-growing costs of these cases.
Generally, businesses and consumers who interact with the debtor are located in areas where the debtor primarily operates, and having to travel long distances makes it harder to protect their interests. The same applies to states that may be owed taxes or other payments. The expenses incurred collecting debts could wipe out any amounts collected through the bankruptcy.
Furthermore, because individual courts set their own requirements for allowing non-local attorneys to appear, financial burdens and unnecessary delays in pursuing justice are virtually unavoidable. The attorneys general’s letter encourages Congress to ensure that when government attorneys appear on behalf of their governments, they can participate in the bankruptcy without having to pay excessive fees or hire local counsel.
“The bipartisan Bankruptcy Venue Reform Act of 2019 eliminates an obvious advantage wielded by corporations during bankruptcy proceedings,†Attorney General Hill said. “I encourage Congress to pass this legislation and even the playing field by preventing corporations from forum shopping.â€
If passed, the Bankruptcy Venue Reform Act of 2019 will:
- Limit where businesses may file bankruptcy by ensuring that they do so in a jurisdiction in which their “principal assets†or their “principal place of business†are located; and
- Require rules to be prescribed to allow all governmental attorneys (not just U.S. attorneys) to appear without charge and without being required to associate with local counsel.
In the letter, the attorneys general tender support to the Bankruptcy Venue Reform Act of 2019, and they contend that passage of the legislation will:
- Reduce forum shopping in the bankruptcy system;
- Strengthen the integrity of, and build public confidence and ensure fairness in, the bankruptcy system;
- Help consumers and other parties to be represented in court without undue burden; and
- Level the playing field for state attorneys general to guard their states’ financial interests and enforce consumer protection laws.
