FOR IMMEDIATE RELEASE: July 14, 2011 CONTACT: Kim Hicks (Smith), 202-225-3951
Smith and Conyers Introduce Chapter 11 Bankruptcy Venue Bill
Washington, D.C. -- House Judiciary Committee Chairman Lamar Smith (R-Texas) and Ranking Member John Conyers, Jr. (D-Mich.) today introduced legislation to prevent forum shopping in chapter 11 bankruptcy reorganization cases. TheChapter 11 Bankruptcy Venue Reform Act of 2011 (H.R.2533) requires corporations to file reorganization cases in the judicial district where they have their principal place of business or principal assets rather than in a far away district where they have no employees, assets or connection to the community.
Loopholes in the current law allowed Enron, a Houston-based corporation with 7,500 employees in Texas, and General Motors, whose principal assets are in Michigan, to leave their employees and creditors behind and file for bankruptcy in New York City, a venue known for being management-friendly. The bill would amend chapter 11 bankruptcy venue rules to require businesses to reorganize on their home turf to ensure maximum input from all affected stakeholders.
Chairman Smith: “Ten years ago, the discovery of Enron’s massive fraud perpetrated on its shareholders, creditors, and 7,500 Houston-based employees forced the company to file for bankruptcy. But rather than face the music in Texas, Enron filed a chapter 11 case thousands of miles away in New York City, a jurisdiction with a reputation in the bankruptcy community for being management-friendly.
“Venue shopping for sympathetic courts has become an all-too-common practice for large companies filing for bankruptcy. Unfortunately, it significantly disadvantages displaced employees, creditors and shareholders who should be able to participate in the reorganization negotiations. This legislation reforms the chapter 11 venue rules to prevent corporations from fleeing to friendly jurisdictions for bankruptcy, while leaving employees, creditors and other stakeholders without a voice in the negotiations.”
Ranking Member Conyers: “This long overdue legislation will help level the playing field between employees and management in corporate chapter 11 bankruptcy cases and restore fairness. Under current law, the very same management that drove the business into financial distress can retain control of the business by choosing to file the chapter 11 bankruptcy case in a management-friendly venue. This bill will limit bankruptcy filing venue options to where the principal place of business or assets of the debtor are located, which typically will be where most of the debtor’s employees are located. As a result, employees will now have a greater ability to protect their interests and to make their concerns known to the bankruptcy court without having to be forced to do so in distant venues.”
Courts, Commercial and Administrative Law Subcommittee Chairman Howard Coble (R-N.C.) and Ranking Member Steve Cohen (D-Tenn.) joined as original cosponsors of H.R. 2533.
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