Congress is considering legislation that could lead to fewer bankruptcy filings in Delaware.
The bipartisan bill introduced in the U.S. House would stop companies from filing for bankruptcy in the jurisdiction where they’re incorporated. They would have to file where they’re principally located or where most of their assets are located.
The bill sponsors say it’s intended to help small creditors, retirees employees fully and fairly participate in bankruptcy proceedings.
Bruce Grohsgal is an experienced bankruptcy lawyer and a professor at Widener University Delaware Law School. He disputes the legislation would help those groups.
“Companies that tend to file in the state where they were incorporated or otherwise formed tend to be larger companies who have creditors and employees located throughout the United States and frankly in the modern world, throughout the world,” he said.
Grohsgal said the legislation is also unnecessary.
“The company that’s bankrupt decides where to file the case," he said. "Once it’s filed however, other parties, such as the employees, can move to transfer venue.”
Gov. John Carney and Delaware’s Congressional Delegation say if the legislation is passed, it would hurt the state’s economy. They say businesses file bankruptcies in Delaware because of its legal system’s expertise and experience.
But critics say companies who file where they are incorporated instead of where they’re primarily located or where their assets are located are forum shopping. They say it makes it hard for small creditors and employees to actively participate in the bankruptcy case. They add it erodes public confidence and hurts local economies.