Legislation to Eliminate New York and Delaware’s monopoly on Corporate Bankruptcy

Legislation to eliminate New York and Delaware’s monopoly on Corporate Bankruptcy was introduced in 2001 when Enron filed for bankruptcy in New York, the state of its incorporation instead of its hometown in Houston, Texas, where its principle place of business was located. Much like the 50% of corporate Chapter 11 cases filed in Delaware and New York combined, the two states reap economic benefits for the legal community.  Bloomberg reports that Delaware derives about $100 billion from its Bankruptcy docket alone.  70 percent of the largest 200 coroporations who filed for Bankruptcy since 2005 did so in New York and Delaware. 

Currently, federal law allows companies to file in either the state of their principle place of business or in the state of their incorporation.  For tax consequences, a majority of businesses are incorporated in New York and Delaware despite their lack of nexus to the states.  This encourages businesses to engage in forum shopping, selecting the state to file for Bankruptcy in the state which provides them with the most benefits including state exemptions.  Additionally, filing in New York and Delaware also creates an inefficient use of resources: flying company representatives out to appear in court, disparity in costs of litigation, and greater Court fees etc…

Legislation was at a standstill in 2001 and again in 2005 as a strong opponent of the law was Vice President Joe Biden who was at the time chaired the Senate Judiciary Committee.  Currently, the legislation has been re introduced by U.S. House Judiciary Chairman, Lamar Smith R-Texas in July 2011 in the Bankruptcy Venue Reform Act of 2011. 

See “Playing on the Home Court” Curriden, Mark. ABA Journal, March 2012.