Why do Large Corps file Chapter 11 in Delaware?

There is a bill pending in Congress to prevent large corporations from filing chapter 11 in Delaware, unless I guess, they are actually doing business in Delaware.  Delaware’s Senator Chris Coons responds here.   Parts of the article re reprinted below.

For decades, our state has been famous for our world-class bankruptcy experts, including attorneys and judges who understand complicated business processes inside and out. Delaware’s courts help businesses reorganize with minimal interruption to ongoing business and help ensure that employees and creditors get the money they’re owed.

Study after study shows that judicial experience translates to efficiency and predictability in bankruptcy litigation, a period when a company is at its most fragile. In other words, experience can be the difference between a business’s failure and survival, and experience, along with serious training and expertise, is exactly what we have here in Wilmington.

You might think I’m biased, since Wilmington is my home, but you don’t have to take my word for it.  Companies from around the country, including two thirds of the Fortune 500, incorporate in Delaware specifically because our bench and bar stand above the rest when it comes to understanding complex legal issues.

The bill from Senators Cornyn and Warren, though, would require businesses to only use the bankruptcy courts where the business is located or has its principal assets, which would limit their choices and frequently prevent them from filing for bankruptcy in Delaware courts. That would inject a hefty dose of uncertainty into corporations from California to the Carolinas and everywhere in between.

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Many people, of course, don’t own a business, and haven’t filed for bankruptcy. So if you’re still wondering why it’s so important for businesses to have access to the bankruptcy court with the most experience in complicated bankruptcies, consider this analogy: if you had a rare, life-threatening disease, would you want the nation’s premiere specialist, or would you want the generalist on duty at the local clinic?

Of course, you’d want the specialist, the best of the best, and if you’re a business in a life-threatening financial situation, the same principle applies.

Senator Chris Coons is the junior United States Senator for Delaware. He serves on the Senate Judiciary Committee and is a member of the Delaware State Bar Association. 

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