Members criticize venue-shopping in corporate bankruptcies; plan legislative fix
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Summary
Several members and witnesses agreed at the House Judiciary subcommittee hearing that forum-shopping—creating or moving shell affiliates to file in favored districts—undermines bankruptcy credibility; sponsors signaled plans to press a Bankruptcy Venue Reform Act to require filing where a company actually does business.
Members of the House Judiciary subcommittee and witnesses said corporate ‘‘venue shopping’’ in chapter 11 filings has eroded trust in the bankruptcy system and that Congress should consider statutory changes to restrict forum shopping.
Representative Zoe Lofgren and other members cited high-profile corporate cases where debtors established a nominal affiliate or changed an address to file in a district perceived as debtor-friendly. Witnesses and judges on the panel largely concurred that such filings undermine confidence in the system and disadvantage local creditors, retirees and employees in the debtor’s home communities.
Professor Melissa Jacoby and Judge Michelle Harner said the issue requires legislative attention. Several members signaled plans to reintroduce or support a Bankruptcy Venue Reform Act that would narrow venue rules and require businesses to file in jurisdictions tied to their operations rather than a manufactured affiliate address.
Panelists cautioned that specific statutory language would require careful drafting to balance administrative predictability with practical exceptions for legitimate multi-district debtors. The subcommittee did not take formal action, but members urged staff to prepare legislative text and gather bipartisan support.