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Predictability. Among bankruptcy lawyers, it is the ultimate consideration when deciding which federal court best suits a corporate client seeking protection from creditors.
For the past decade, that jurisdiction has been Delaware, a pro-business state where many of the nation's major companies are incorporated. Those firms, faced with the option of filing in their home states or elsewhere, have almost invariably turned to Delaware's twojudge bankruptcy court and its reputation for quick hearings, high attorneys' fees and a pro-debtor bent.
But that may all be changing.
Bankruptcy lawyers say that a Texas federal judge's 2-year-old idea could be the thin end of a wedge that separates Delaware from its hegemony. The Texas judge, Richard S. Schmidt, implemented new court rules aimed at providing debtors a smoother and quicker transition into bankruptcy. Judges in other states are taking note in an effort to keep homegrown companies from bolting to Delaware when times get tough.
"There were a lot of complaints, people saying that companies should be forced to file where they are headquartered, not where they are incorporated," says Joel H. Levitin, a partner at the New York office of Dechert and chair of the Rules subcommittee of the American Bankruptcy Institute. "Now the other courts want to emulate Delaware."
Veteran bankruptcy lawyer Joel P. Kay of Houston's Hughes, Watters & Askanase, says it was early 2000 when he filed one of the first cases under the new complex Chapter 11 framework in Houston.
"When you know you're going to have access to the court to deal with these matters at a certain date and at a certain time, that eliminates a lot of anxiety and reduces the costs," says Kay, who filed a bankruptcy petition on behalf of Houston's Tri-Union Development Corp.
In the past, he says, he would have filed a similar case in Delaware, if only because the Texas bankruptcy courts would not move quickly enough to keep a client afloat by authorizing continued spending on payroll, supplies and other expenditures that keep a business alive.
Though courts in Miami, New York, Chicago and Los Angeles are contemplating measures similar to those adopted in Texas, most interviewed agree Texas is far ahead of the pack chasing Delaware.
"Courts are changing their first...