Lawmakers in the United States Senate have introduced a bill that proposes bankruptcy changes for companies that are incorporated in Delaware or New York this week. Texas Senator John Cornyn (R., Texas) and Elizabeth Warren (D. Mass.) introduced the bill this week that requires companies seeking to reorganize their finances, file bankruptcy closer to their headquarters.
Incorporation in Delaware
Many businesses choose to incorporate themselves in Delaware due to the extensive expertise and precedent of corporate law in the state. Additionally, companies large and small incorporate in Delaware due to the absence of corporate income tax and personal income tax. The bill’s sponsors feel that the bill would end the practice of “forum shopping” in which companies choose bankruptcy court districts based on their bias towards owner’s interest. In total, nearly two-thirds of all the Fortune
Bankruptcy Venue Reform Act
The Bankruptcy Venue Reform Act would call for companies filed for Chapter 11 bankruptcy where they are headquartered, not where they were incorporated. The bill, if passed, is expected to significantly affect Delaware’s economy where the Bankruptcy Court handled close to 3,000 bankruptcy cases in the last 12 months. Advocacies of the bill claim that by lessening the number of bankruptcies that appear in Delaware Bankruptcy Courts, the local hotels, and restaurants, as well as, the state’s legal and business service sectors will suffer as a result. On the other side of the table, proponents of the new Senate bill say that it will make corporate bankruptcies fairer, by having the proceedings occur where employees work and live.
The U.S. Bankruptcy Code allows for special provisions to streamline and expedite Chapter 11 bankruptcy cases for single-asset real estate and small business debtors. If you’re interested in learning about how you can reorganize your business finances while staying in business, contact your local business bankruptcy attorney.