Attorney General Bonta Urges Congress to Pass Legislation to Prevent Corporations from Forum Shopping When They File Bankruptcy

OAKLAND – California Attorney General Rob Bonta today joined a bipartisan coalition in urging Congress to pass the Bankruptcy Venue Reform Act, legislation that would close a loophole in the Bankruptcy Code that allows corporations to “forum shop” when they file bankruptcy. Forum shopping refers to the popular corporate tactic of filing for bankruptcy in a district a corporation believes to be most favorable to its interests — instead of the district where the corporation’s principal place of business or assets are located. 

“Corporations shouldn’t get to pick and choose which laws they want to be subject to — but that's exactly what bankruptcy law currently allows by enabling corporations to forum shop for the most favorable jurisdiction,” said Attorney General Bonta. “Today, I’m joining my colleagues in urging Congress to strengthen the integrity of our bankruptcy system and instill public confidence in its fairness by passing the Bankruptcy Venue Reform Act. It’s just commonsense.”

Under current bankruptcy law, individuals can file bankruptcy only in their district of residence. Corporations, however, can file in any district in which they are incorporated, have their principal place of business or assets, or in any district where an affiliated entity, no matter how small or recently created, has filed bankruptcy using any of these provisions. The Bankruptcy Venue Reform Act would end this practice by limiting where corporations can file for bankruptcy to just the jurisdiction in which their principal place of business or assets are located.

In today’s letter, the bipartisan coalition expresses strong support for the Bankruptcy Venue Reform Act and urges Congress to swiftly pass this critical legislation. Attorneys general are responsible for guarding their states’ financial interests, enforcing consumer protection laws, protecting citizens from environmental pollution, and combating wrongdoing in whatever form it may take. These responsibilities are difficult enough when corporations file bankruptcy and claim to be financially unable to comply with their legal obligations. These difficulties are only multiplied when bankruptcy law allows corporations to seek relief in distant jurisdictions in the hope of finding rulings that are friendlier to their interests. 

Attorney General Bonta joins the attorneys general of Connecticut, Maryland, Ohio, Texas, Alaska, Arizona, Arkansas, Colorado, District of Columbia, Florida, Georgia, Guam, Hawaii, Idaho, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maine, Massachusetts, Michigan, Minnesota, Nevada, New Hampshire, New Mexico, New York, North Dakota, Oklahoma, Oregon, Pennsylvania, Puerto Rico, Rhode Island, South Carolina, South Dakota, Tennessee, Utah, Vermont, Washington, West Virginia, Wisconsin, and Wyoming in sending the letter. 

A copy of the letter can be found here.