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Bankruptcy filings slow as Del. remains top court

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Chapter 11 filings in the Delaware Bankruptcy Court fell 68% to 524 in 2021. Delaware’s own Chapter 11 “mega cases” fell
from 98 to 33. | DBT PHOTO BY MIKE ROCHELEAU

WILMINGTON – Delaware has long been a national leader for bankruptcy filings, with its federal court considered a top magnet venue for the most complex cases involving the largest number of assets.

At the height of the pandemic in 2020, the U.S. Bankruptcy Court for the District of Delaware saw 1,666 Chapter 11 filings, more than doubling 2019’s total and reaching levels not seen since the Great Recession. Those filings included a near record 57 filings with assets of at least $100 million.

Many in the financial and legal industries expected those numbers to continue into 2021 as the pandemic’s effects ground down company’s revenues and profits.

Conversely though, government intervention through the Paycheck Protection Program, stimulus checks and other programs along with low interest rates helped to prop up many companies and keep them out of bankruptcy, which led to a dramatic slowdown in filings nationwide and in Wilmington.

Chapter 11 filings here fell 68% to 524 in 2021, and of that the state’s share of Chapter 11 “mega cases” fell from 98 to 33. Despite those declines, Delaware continued to be the top stop for many large companies seeking to reorganize its debts or liquidate assets, ranking No. 1 in total Chapter 11 filings.

Much like the nearby Delaware Court of Chancery’s reputation on corporate law, bankruptcy petitioners prefer to file in Delaware due to the knowledge of its eight-member judicial panel who rule on the cases. The Wilmington court’s weighted caseload per judge was 2,363 last year, which is by far the largest of any court in the country. Led by Judge Laurie Silber Silverstein, the court is currently short one member as the Third Circuit seeks to replace recently retired Chief Judge Christopher Sontchi.

The continued strength of Delaware’s bankruptcy bar and courts has led more law firms to open offices in Wilmington, including most recently New Jersey-based  Pashman Stein Walder Hayden.

John Weiss, chair of its bankruptcy, restructuring and creditors’ rights practice, recently told Delaware Business Times that the firm opened an office here a year earlier than expected in order to take advantage of the continued high-value filings.

“I believe that Delaware will absolutely unquestionably be a premier venue for these cases through this cycle,” he said.

Delaware’s uncontested lead for the largest bankruptcy filings may not be indefinite though. Last year, it barely edged one of its growing competitors for filings, the Southern District of Texas, which saw 519 Chapter 11 cases, including the year’s largest, Seadrill Limited worth $7.3 billion. The Northern District of Texas has also set its sights on increasing its caseloads as it follows its southern companion’s playbook.

Another lingering threat is congressional action, as Sens. John Cornyn (R-Texas) and Elizabeth Warren (D-Mass.) seek support for their Bankruptcy Venue Reform Act (BVRA). The legislation has been proposed for more than a decade, but was reintroduced in 2021, and seeks to disallow places of incorporation as a venue for bankruptcy filings. The sponsors argue that allowing companies to file in places in Delaware or New York, despite having no physical presence there, puts locals, employees and creditors at a disadvantage in the hearings.

In 2018, when the latest version of the BVRA was first introduced, Gov. John Carney and Delaware’s congressional delegation loudly opposed the proposal.

“Our economy thrives when the bankruptcy system is fair, predictable, and efficient. Experienced bankruptcy judges are critical to ensuring that companies can restructure in a way that saves jobs and preserves value,” they said in a statement.

With House Judiciary Committee Chair Jerry Nadler (D-N.Y.) also representing a top bankruptcy court, the Southern District of New York, the bill has failed to advance beyond public debate, but that may someday change.

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