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RECOMMENDED READING: Where Bankruptcy Cases Can Proceed is Shaped by the Type of Reorganization and New Technologies for Case Management

Recommended ReadingWhy do large and complex bankruptcy cases get filed mainly in Delaware and New York City?  For a valuable perspective on that question, the Editorial Staff of Commercial Bankruptcy Investor recommends Christopher A. Ward, “Venue: Energy Future’s Take on the Controversial Topic,” which is published on the Morris Anderson website.  Ward reviews a recent decision by the U.S. Bankruptcy Court of the District of Delaware which rejected an attempt by an indenture trustee for certain noteholders to change the venue of the huge case of In re Energy Future Holdings Corp, Case No. 14-10979 (Bankr. D.Del.) from the District of Delaware to the Northern District of Texas – where the principal places of business for the electric producing and delivering affiliated co-debtors are located, along with the vast majority of their assets and employees.

Ward’s article reviews factors considered in deciding venue challenges, and how those factors are affected by the type of restructuring contemplated. The Energy Future court noted that the Delaware and Northern District of Texas venues could each handle the massive case — the 8th largest chapter 11 case ever. Ward recounts how the court found persuasive the facts that the case is a financial restructuring, as opposed to an operational restructuring, and that the vast majority of financial and legal professionals involved, as well and most creditors, are located in the Northeast. The court also reviewed the levels of the debt structure and found that only the movant had staked out a position in favor of changing the venue of the case. Of further importance for venue challenges, the court observed that technology of case management and corporate document management have made the geographical location of companies and courts less important to venue decisions than formerly.

One of our sister sites, Commercial Bankruptcy Alternatives, published a description of venue rules: Lawrence V. Gelber & Eric Schneider, “Location, Location, Location – Where to File Bankruptcy.” Among the stakes identified by Gelber and Schneider are sometimes outcome-determinative differences in legal doctrine that apply from venue to venue.  For example, where a party in the case would gain from the recharacterization of the “loan” to the debtor by a principal to an equity contribution (which has a lower payment priority), the choice of venue may determine whether that gain occurs. See, on the present site, Lawrence V. Gelber & James Bentley, “How Unsecured Creditors Push Ahead of Lenders Who in Fact Invested, Part I—What is Recharacterization?” Similarly, the choice of venue may determine whether, in a section 363 sale of commercial real property, the purchaser can take “free and clear” of the interests of the current lessee of the property.  On that issue may turn a substantial portion of the value of the property.  The answer from the Seventh Circuit Court of Appeals is closer to “yes” than it has been in cases decided by bankruptcy courts in South Carolina or Massachusetts.  See the recent well-reasoned opinion issued in Dishi & Sons v. Bay Condos LLC, Case 1:13-cv-08300 (S.D.N.Y., May 28, 2014) (collecting cases and reconsidering the interpretive dispute).

About The DailyDAC Editors

The editors and editorial board of DailyDAC include preeminent restructuring and insolvency professionals, journalists, and editors. They are devoted to providing reliable and plain English education and deal intelligence about assignments, corporate bankruptcy, receiverships, out-of-court workouts and similar topics.

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