Written by Craig D. Robins, Esq.
Large Companies Filing for Bankruptcy Can Usually Choose Which Bankruptcy Court to File In
The big three automakers are headquartered in Michigan. Why, then, did Chrysler and General Motors file their gigantic Chapter 11 bankruptcy cases in New York bankruptcy court?
The answer is called “forum shopping.”
When it comes to large, corporate bankruptcies, companies can file in any jurisdiction where they have an affiliate who has filed for bankruptcy. With the case of General Motors, the auto giant filed a bankruptcy for a company-owned dealership in New York just minutes before they filed the major bankruptcy.
Forum shopping has existed for quite some time with bankruptcy cases. Large companies that have affiliates all over the country can thus file almost anywhere. They can file their bankruptcy case where they feel the law or court would favor them the most.
Not only is forum shopping widely accepted, bankruptcy judges actually seem to compete to get the biggest and most newsworthy cases as if they are badges of honor.
Most large corporations prefer to file for bankruptcy in New York or Delaware. These two states have long track records of adjudicating involved, corporate bankruptcy cases. The courts in these two states tend to apply the law very consistently, so that attorneys can predict how the court will rule on a particular issue. Also, the judges in these states agree to permit bankruptcy attorneys to collect very generous attorneys fees.
As long as there has been forum shopping there has been debate as to whether it is moral or ethical.