WILMINGTON — Delaware has continued to stand on top of the 94 federal courts that handle reorganizing debt for some of America’s largest companies, even with splashy headlines in other states seeking to attract more corporations with rising business courts.
As Texas lawmakers have delivered legislation to build the Texas Business Court to hear commercial cases worth more than $5 million, the busiest U.S. Bankruptcy Court and District Court is still located in Wilmington, Delaware.
With its century of corporate law on the books, Wilmington has long served as the center for most corporate America — and the city has long depended on business services, bankruptcy and intellectual property. When the corporate giants need patent issues resolved and debt settled, chances are it will be in a Delaware courtroom.
In 2023, Delaware continued to be the main venue for so-called Mega Chapter 11 bankruptcy cases that involved more than $100 million in assets and 1,000 more in creditors. By June 2024, there were 48 such cases out of all 1,073 Chapter 11 bankruptcies.
In the first half of 2024, Delaware’s court case load still managed to outpace the Southern District of New York as well as the Southern District of Texas. Reports show that between March and June of this year, Delaware handled 346 Chapter 11 for businesses and creditors – compared to the 77 cases in the Southern District of New York and the 261 in the Southern District of Texas.
However, all Chapter 11 bankruptcy cases is finally starting to pick back up. Chapter 11 filings here rose from 380 in 2023 to to 804, while Chapter 7 filings also rose from 617 to more than 800.
This year, Delaware has been the home court for major bankruptcy cases like Big Lots, Anthony’s Coal Fired Pizza, LL Flooring (formerly known as Lumber Liquidators), luxury fitness brand Blink, and military aircraft manufacturer Paramount.
Charles Elson, the Founding Director of the University of Delaware’s Weinberg Center for Corporate Governance, said that it’s almost a Catch-22 when it comes to bankruptcy filings. When an economic recession arrives, it raises the chance companies will file for bankruptcy, meaning that Delaware’s bankruptcy courts will get busier.
“I wouldn’t say we’re in a recession, the economy has done pretty decent in the last eight years, despite significant inflation which has dampened some of the activity,” he told the Delaware Business Times. “Some of the earnings are still decent, but there’s companies that are more vulnerable in a recession, like retail. Look at Bed Bath and Beyond.”
Nationally, bankruptcy cases for commercial entities are on the rise, and the first six months of 2024 saw 35% more cases than in the same time period of 2023. More than 3,000 cases were filed as of June 2024.
However, Elson noted that there is always a time lag when it comes to how companies respond to the greater headwinds. For example, the Paycheck Protection Program lent a lifeline to companies that helped them survive the immediate downturn from the COVID-19 pandemic. The American Rescue Act Plan funneled trillions of dollars to institutions and local governments, which in turn spent that money on goods and services.
“Bankruptcy doesn’t happen immediately, it can be a year or two years into it,” he added. “But we have the advantage of precedent and the comfort that comes with that. With the comfort with how bankruptcy judges operate, consistency is typically your friend if you’re a lawyer dealing with these cases.”
