Legislation aims to move bankruptcy cases away from Delaware

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Home of U.S Bankruptcy Court in Wilmington.

A bipartisan group of lawmakers is proposing a law that would move bankruptcy cases closer to company headquarters.

The Wall Street Journal (paywall) reported the bill is in response to concerns that moving bankruptcies to venues like Delaware and New York, discourages stakeholders, such as employees and vendors, from having their say.

Delaware has long been the home for Chapter 11 reorganization filings, especially for mid-sized companies in retailing, restaurants and even oil exploration. Many of these companies are incorporated in Delaware.

Large company filings often go the home states of companies or New York. Still, Delaware has been the site of complex cases that included bankruptcy filings by the Tribune Co. newspaper publisher, and the largest utility in Texas, which made a bad bet on the use of coal in electricity generation.

The Delaware legal community is expected to argue that Delaware offers advantages that include experienced judges that can handle complex cases involving financial restructuring and other issues.

In a few cases, Delaware bankruptcy judges have opted to move filings to locations closer to the company’s physical presence. That was the case in the Chapter 11 filing of Hawaii’s telecommunications company.

The issue emerged in the current campaign for president with a person unhappy with the treatment of their investment in Delaware Chancery Court digging up footage of a clash between hopefuls Sen. Elizabeth Warren and former Vice President Joe Biden.

Warren at the time a law professor and Biden a U.S. Senator got into a dispute in a congressional hearing about Delaware as a legal venue.

Shirley Shawe, the owner of one percent of the stock in TransPerfect, a translation service company that was the subject of a court battle by its 50-50 owners, paid for commercials critical of Biden. Chancery Court later awarded control to her son Philip Shawe.

Both Shawesare unhappy with their treatment in Chancery Court in a case that reportedly piled up a quarter of a billion dollars in legal fees.

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