How to Choose a Venue for Filing Bankruptcy
From a theoretical standpoint, the district in which the bankruptcy petition is filed should be of little consequence. However, this is not really the case. There are close to a hundred different jurisdictions in which the bankruptcy petition can actually be filed. Also, in many cases, companies have options that they can use to decide the location, which would be most advantageous to file the bankruptcy.
Selecting the Bankruptcy Venue
The location in which bankruptcy is filed is called the bankruptcy venue. Also, it needs to be understood that pretty much every large company gets the option to choose from amongst multiple locations. For instance, if a company has been incorporated in New York but has its main business operations in Florida, it can file for bankruptcy in either of the locations. Also, if the same company has an important production facility in Minnesota, it could also file for bankruptcy in Minnesota.
Many observers are of the opinion that selecting a bankruptcy venue is almost as important as selecting the time of the bankruptcy, if not more. Theoretically, the judgment of the court should be the same regardless of the venue in which the petition has been filed. However, if you ask legal experts whether or not the location of the petition matters, most of the times, the answer will be a resounding yes.
There are many factors that are commonly used to select between different venues. Some of the important ones have been listed below:
Bargaining Power in the Local Economy
If the debtor company is a large employer in a particular region, then the company is better off filing the bankruptcy petition in that jurisdiction. This is because there is always a human element to a bankruptcy filing. The opinions of the court judges are often linked to the opinion of the common public. Therefore, if the people of the venue are sympathetic to the financial situation of the company, so will the judges.
This is the reason why companies often choose to contest their bankruptcy petition from places where they have maximum employees. For instance, the business of Coca Cola has a huge impact on the economy of Atlanta, Georgia. Similarly, the business of Nike has a huge impact on Beaverton, Oregon. Therefore, if these companies were to file for Chapter 11 bankruptcy in these jurisdictions, the judges would have a greater interest in ensuring that these companies are able to reorganize themselves successfully. If they fail and have to file for Chapter 7 bankruptcy, then the impact on the local economy will be huge since thousands of people will be left jobless in the process!
Debtor Friendliness of the Location
There are some districts in the United States which are known to have debtor-friendly rules. This is because they want to invite more businesses and investors as it increases the level of employment in the state. Delaware is one state which is known for being business-friendly. This is the reason that a lot of businesses are incorporated in places like Delaware. This is also the reason that when it comes to a bankruptcy filing, a lot of businesses file in Delaware since they expect the judges and the judgment to be more favorable to their interests.
How Developed Is The Judicial System?
Not all judicial systems are the same across the United States. For instance, the number of judges appointed to a case varies by the district. If a particular district is known for assigning more judges to bankruptcy cases, then it is often in the interest of the firm to avoid filing there. This is because as the number of judges assigned increases, so does the probability of getting a judge who may not provide a favorable judgment. It is a known fact that while filing for bankruptcy, the legal counsel of the debtor organization tries to make a calculated guess about who the judge of that case will be. They only file the petition when the judge rules out in their favor.
Also, some venues are more developed in the sense that there have been liberal judgments given in favor of the debtor company in the past. Hence, if a new petition is filed, these judgments can be used as a precedent and the chances of a favorable judgment increase.
Last but not least, the issue of court expenses also have to be taken into the picture. If the company decides to file at a certain venue, it could mean more or fewer costs. In some cases, they may be able to hire a local law firm to keep the expenses low. In other cases, they may have to hire lawyers who frequently have to fly across the country. Since bankruptcy lawyers have high fees, which are usually billed by the hour, this often works out to be an expensive proposition. The legal costs can be significant, and sometimes they add up pretty quickly. It is for this reason that they also need to be taken into consideration before filing the petition.
The bottom line is that the selection of the venue where the bankruptcy motion needs to be filed is a very important consideration. It cannot be left out to chance. Companies and lawyers use all means possible to increase their chances of a successful outcome by carefully selecting the venue.
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