Document Type

Article

Publication Date

1991

Abstract

An empirical study of the bankruptcy reorganization of the forty-three largest, publicly held companies to file and complete bankruptcy proceedings from 1979 to 1988 revealed extensive forum shopping. In virtually all cases examined by the authors, the law afforded a choice of venue. In a substantial number, the petitioning company engaged in "forum shopping" by choosing a venue where the company had little or no physical presence. Most often the venue was New York City. In iheir venue choices, petitioners usually sought to avoid venues that appeared hostile to extensions of exclusivity or that aggressively regulated attorneys' fees. The authors argue that new venue choice policies are needed to deal with the problems of forum shopping. At present, two alternative policy responses exist: eliminate forum shopping or accommodate it. The authors recommend the latter option, which may be implemented by tightening statutory standards and narrowing judicial discretion. This approach could effectively deal with the most evident current problem, the routine extension of exclusivity, as well as with the potential problem of excessive attorneys' fees. The primary benefit of this approach would be competition among alternative fora for megabankruptcies, resulting in improved efficiency of the reorganization system. The authors also discuss additional types of forum shopping-fragmentation and overcentralization. The Bankruptcy Code deals with business entities, while the intent behind reorganization is to address enterprises. An enterprise reorganization is vulnerable to legal strategies that fragment the process among several fora. Alternatively, a single entity may use the reorganization of one of its enterprises as a means to centralize reorganization of its other enterprises, to the detriment of creditors. The most obvious solution, the authors argue, is to shift the focus of the approach of the venue statutes from entities to enterprises.

Share

COinS