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AG Nessel Joins Coalition Supporting Legislation to Better Regulate Corporate Bankruptcy Filings

LANSING – Michigan Attorney General Dana Nessel recently joined a coalition of attorneys general in filing a letter to support the Bankruptcy Venue Reform Act of 2019. This bipartisan legislation would prevent a corporation from filing for bankruptcy in a district it believes would offer more favorable rulings — a practice known as “forum shopping” — when the corporation’s main place of business or assets are located in a different district. Forum shopping imposes a burden on states and other creditors who may have to travel and incur significant expenses to pursue their claims.

Under current U.S. law, individuals must file for bankruptcy in the district where they have resided for a majority of the 180 days prior to filing. However, corporations are allowed to pursue bankruptcy in any district where the corporation has a minor affiliated interest, no matter how small or recently created.

Filing in any district where the corporation has minor interest provides a major advantage to the corporation and leads to these cases being placed in some of the most expensive legal markets in the country. Generally, businesses and consumers who interact with the corporation are located in areas where the business primarily operates and having to travel for lawsuits makes it harder to protect consumer and business interests. The same applies to states that may be owed taxes or other payments and may incur expenses to collect that money. Those expenses could wipe out any amounts collected through the bankruptcy.

Additionally, 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 require local counsel to be associated with the case – financial burdens and unnecessary delays in bankruptcy cases are virtually unavoidable.  The coalition’s letter encourages Congress to ensure when attorneys appear on behalf of the government, they can participate in the case without having to pay excessive fees or hire local counsel.

“My office will continue to stand up to protect Michiganders from companies who conduct business in bad faith,” said Nessel. “Trying to manipulate the financial and judicial system to benefit a company to the detriment of consumers is unacceptable and makes it all the more important for me to take a strong position on this matter.” 

In the letter, the attorneys general affirm passage of the legislation will:

  • Ensure businesses file in a jurisdiction where their “principal assets” or their “principal place of business” are located;
  • Require new rules allowing all government attorneys (not just U.S. attorneys) to appear without charge or to associate with local counsel;
  • Strengthen the integrity of, and build public confidence and ensure fairness in, the bankruptcy system;
  • Help consumers and other parties to be represented in court without unnecessary burden; and
  • Level the playing field for state attorneys general to guard their states’ financial interests and enforce consumer protection laws.

Nessel joins the attorneys general of Alabama, Alaska, Arizona, Arkansas, California, Colorado, the District of Columbia, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Minnesota, Mississippi, Missouri, Nebraska, Nevada, New Hampshire, New Mexico, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Puerto Rico, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Washington, West Virginia and Wisconsin in filing the letter.  

A copy of the letter is available here.