Michigan Attorney General Dana Nessel co-sponsored a letter to Congress signed by 43 attorneys general in support of the Bankruptcy Venue Reform Act of 2021.
The bipartisan legislation would end “forum shopping” and prevent corporations from choosing to file for bankruptcy in whichever district is believed to be more favorable.
Currently, incorporations may file bankruptcy in any district in which they are incorporated, have their principal place of business or assets, or in any district where an affiliate – no matter how small – has been created or located. This leaves corporations with a wide choice of possible venues, which can be manipulated to their own advantage.
“This legislation would close a loophole that allows corporations to strategize a bankruptcy filing,” Nessel said. “These proposed bills already have bipartisan support, and I join my colleagues in urging Congress to get them across the finish line.”
If passed, the Bankruptcy Venue Reform Act of 2021 will:
• Limit where businesses may file bankruptcy by ensuring that they will do so in a jurisdiction in which their “principal assets” or their “principal place of business” are located.
• Require the parent company’s status to determine where affiliates filings will be allowed.
• Require rules to be prescribed to allow all governmental attorneys to appear without charge and without being required to associate with local counsel.
In the letter, the attorneys general contend that passage of the legislation will:
• Reduce forum shopping in the bankruptcy system.
• Strengthen the integrity of, and build public confidence and ensure fairness in, the bankruptcy system.
• Help consumers and other parties to be represented in court without undue burden.
• Level the playing field for state attorneys general to guard their states’ financial interests and enforce consumer protection laws.
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