The Wall Street Journal recently reported distressed companies are leasing office space in White Plains, New York for the sole purpose of establishing venue there for their soon to be filed Chapter 11 bankruptcy cases. The practice, known as “forum shopping”, is strictly prohibited in all other federal courts but is widely used by companies preparing to file bankruptcy because of liberal bankruptcy venue provisions.
If experts are right, a wave of bankruptcy cases is coming. If you are a taxpayer, or an employee, landlord, tenant, vendor, or equity holder of a debtor that has engaged in forum shopping, you will be affected. Instead of walking or driving to your local Bankruptcy Court, you will be forced to go to New York, Delaware, or whatever other location the company, or its lenders, have decided is most favorable to them where your case might be heard by a “temporary judge” or a retired judge. Shouldn’t that money go to the community which is suffering from the loss of the bankrupt company?
I am a member of a national group of insolvency professionals that has been trying to reform bankruptcy venue laws for years. HR 4421 was introduced in the House in September to stop forum shopping. Congressmen Timmons and Cunningham of South Carolina are co-sponsors. HR 4421 should be included in the next COVID relief bill for the reasons stated and because it will save taxpayers hundreds of millions of dollars.
Recently, a committee of economists and law professors suggested a radically different and very expensive remedy: that Congress appropriate hundreds of millions of dollars to hire “temporary judges” and recall retired bankruptcy judges to handle these cases.
What competent bankruptcy lawyer would apply for a temporary position as a bankruptcy judge when that lawyer can demand substantially higher compensation in private practice?
The committee also proposes recalling retired judges, most of whom are over 60 and enjoy full retirement benefits. To entice these judges to risk exposure to the virus, Congress will have to appropriate substantial supplemental compensation for them; this will not be well received by other federal judges, whose salaries are currently higher than Bankruptcy Judges. Conversely, including bankruptcy venue reform in the next COVID relief bill will promote the efficient allocation of existing judicial resources at no additional cost to the taxpayer. There are currently 350 bankruptcy judges who are ready, willing, and able to hear these cases in the appropriate jurisdictions. HR 4421 is supported by the National Association of Attorneys General (42 of 50), 163 United States Bankruptcy Judges, the South Carolina Bar Association, and the South Carolina Bankruptcy Law Association.
This is an issue that transcends party lines. Every member of our congressional delegation should support this legislation. Many thanks to Congressmen Cunningham and Timmons for promptly reviewing the bill, recognizing its merits, and becoming cosponsors. My question to Senators Graham and Scott and Representatives Wilson, Clyburn, Rice, Duncan, and Norman is this: Why are you not supporting this legislation which benefits all South Carolinians and saves taxpayers hundreds of millions of dollars?
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