Venue Reform in Corporate Bankruptcies

Q: What are you overall views on the proposed venue reform?

Bob Gayda: My view is that the proposed reform is somewhat misguided, and seeks to solve problems that do not really exist. The basic argument advanced by venue reform proponents (which can be found in a letter sent to Congress by 42 state attorneys general which supports the proposed changes) is that large bankruptcy filings are concentrated in New York and Delaware, which disenfranchises "local" creditors and employees, preventing them from participating in the bankruptcy process. I think this position is inaccurate on both counts. First, while New York and Delaware host a significant number of large corporate bankruptcies, filings in other jurisdictions are becoming far more frequent. For example, Texas has become one of the preeminent jurisdictions for large cases in recent years, and others have been filed in St. Louis, Richmond, Omaha, Akron and a host of other courts. Second, I do not think that merely filing a case in New York or Delaware acts to prejudice employees or creditors at large. There is no guarantee that filing where a debtor is headquartered will maximize the participation of these constituents — in retail cases (of which there have been many recently), for example, it is more likely that the creditor body is global (suppliers are often overseas) and employees are spread throughout retail locations all over the U.S. Thus, filing where the company is headquartered provides no greater benefit to those constituents.