Bankruptcy Shopping: Domestic Venue Races and Global Forum Wars

This Article proposes reforms to bankruptcy law’s venue rules. These reforms would expand venue choice, reduce opportunistic venue shopping, and account for the rise of global forum shopping. To date, the leading proposals to reform venue selection rules for bankruptcy cases have ignored simpler alternatives that can reduce opportunistic misbehavior while preserving beneficial choice. Moreover, those proposals have focused exclusively on restricting a debtor’s choice among venues within the United States while ignoring the increasing availability and convenience of foreign courts as forums for distressed corporate debtors seeking to initiate insolvency proceedings. In this way, the proposals on the table run the risk of failing at their primary goal and at the same time exacerbating international forum shopping and escalating a global forum war.

To remedy this, we suggest alternative reforms that account for the availability of foreign forums, reduce opportunities for harmful venue shopping, and preserve the benefits of choice. Rather than restrict a debtor’s ability to select a domestic venue, reforms should (1) allow firms to make an ex ante commitment to a procedure for choosing a bankruptcy district, and (2) resolve inconsistencies in substantive bankruptcy law across venues and forums. These reforms would retain beneficial choice while reducing opportunistic shopping of both domestic venues and foreign forums. The precommitment mechanism we propose is preferable to existing proposals even for parties that cannot shop globally, but the availability of foreign forums makes the case even stronger.