Washington, D.C. — The National Association of Attorneys General (NAAG) sent a letter to members of Congress voicing support of the Bankruptcy Venue Reform Act of 2019 (H.R. 4421).
The legislation will prevent a corporation from filing for bankruptcy in a district that it believes would be more favorable on issues to the debtor’s advantage—a practice known as “forum shopping”—when the corporation’s principal place of business or assets are located in a different district, which imposes a burden on states and other creditors who may have to travel and incur significant expenses to pursue their claims.
Currently, corporations are permitted to pursue bankruptcy in any district in which they have a minor affiliated interest. Furthermore, because each individual court currently sets its own requirements for allowing non-local attorneys to appear, including deciding whether to charge an admission fee in each case and/or to require that local counsel must be associated to the case, financial burdens and unnecessary delays in pursuing justice are virtually unavoidable.
The letter, signed by 42 state and territory attorneys general, reads “As state attorneys general, we are charged with guarding our states’ financial interests, enforcing consumer protection laws, protecting our citizens from environmental contamination, and combating wrongdoing in whatever form it takes. These duties are difficult enough to carry out when corporations file bankruptcy and claim to be financially unable to comply with their legal obligations. The difficulties are multiplied when bankruptcy law allows those debtors to seek relief in distant jurisdictions where the debtors have found rulings that are friendlier to their interests than to those of persons and agencies located far away who will have difficulty affording to appear and be heard.”
If passed, the Bankruptcy Venue Reform Act of 2019 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; and
- Require rules to be prescribed to allow all governmental attorneys (not just U.S. attorneys) to appear without charge and without being required to associate with local counsel.
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