What is Venue Shopping, and How Is It Used in Chapter 11 Bankruptcy in Arizona?
Chapter 11 bankruptcy, the restructuring bankruptcy that is usually reserved for corporations due to its expense and complexity, is often strategic. Many large companies have filed for Chapter 11 and come out relatively unscathed. This requires a great deal of strategy, and one of the things that has long been employed as a strategic move is the decision of where to file.
The place where a bankruptcy case is filed is called its “venue," and looking for the most advantageous venue is referred to as “venue shopping." Although all bankruptcy courts in the United States follow the same body of legislation, colloquially known as the “Bankruptcy Code," their interpretations can differ. Every court must follow the precedent within its locale, and this leads to varying results on the same issue around the nation. Because of this, many debtors try their best to find a location that is the most advantageous to them, and then try to file their case there.
However, there are rules on what the proper venue for a given case is. Fortunately for corporations, they often have more choices of where to file than most individual debtors. A corporation can choose to file bankruptcy where it is incorporated (which is often Delaware, because it has an experienced body of business courts, and other advantages), where its principle place of business is, or where its principal assets are. Additionally, if there is another bankruptcy case already filed dealing with an affiliate, general partner, or partnership, the company can also file in that state. This can, potentially, give a company the option of filing in four different states.
Although every state may have different advantages and disadvantages for a bankrupt company that files within its jurisdiction, the most commonly sought venues for corporations to file in are Delaware and the Southern District of New York. Bankruptcy courts in these two jurisdictions deal often with corporations of complexity and size, because they are where the most corporations reside and are incorporated. This makes them predictable, because many issues have been decided regarding complex Chapter 11 disputes, and a debtor can therefore form a better strategy and approach. This allows debtors in these jurisdictions to seek the most advantageous and profitable outcome, which is the goal of bankruptcy.
Contact a local Arizona Bankruptcy Attorney for more information.