How real is the threat to the District of Delaware and the Southern District of New York as the prime venue choices for corporate Chapter 11 bankruptcy cases? It appears that both are safe, at least for now.
Venue for bankruptcy cases is governed by 28 U.S.C § 1408, which provides that corporations may file in the district (a) in which their “domicile, residence, principal place of business in the United States, or principal assets in the United States” have been located during a majority of the prior 180 days, or (b) in any district where an affiliate, general partner or partnership has filed using any of these provisions. Because many companies are incorporated in Delaware, the District of Delaware has been a prime beneficiary of section 1408 and many of the countries’ largest bankruptcies have historically been filed in Delaware. Similarly, because many companies have their principal assets in the Southern District of New York, many large cases have been filed there as well. But what has caused the most controversy is the use of affiliates, even affiliates which are insignificant in size and in importance, to establish venue in the District of Delaware and the Southern District of New York for the entire corporate enterprise even when the enterprise, as a whole, has only tangential contact with these venues. Often this appears to be done at the behest of debtors or lenders who view the judges or jurisprudence in those districts as more favorable to their positions.