How Bankruptcy Filings Are Being Affected By The Delaware Court

Most large corporations choose to incorporate in Delaware, where the corporate laws are favorable to corporate officers or shareholders. This means that when one of these companies must file for bankruptcy, they may choose to do so in Delaware, and often do. As a result, the bankruptcy caseload in Delaware is heavy.

According to uscourts.gov, there were 2,889 cases filed in Delaware in 2016 and 5,860 cases pending in that same year. Often these cases involve large corporations with complicated legal proceedings which take a considerable amount of time to adjudicate.

The Problem Faced By Delaware Bankruptcy Court

With such a heavy caseload, it is essential to have an adequate number of judges available to work on such cases. Previously there were six judges assigned to handle these cases. However, five of those six judges were temporary. Those positions were set to lapse on May 25, 2017, meaning that if any of the temporary judges left their positions, those positions would not be filled. That could have left one judge to manage the filings and complex legal proceedings of Chapter 11 bankruptcies. This would force large corporations to hold bankruptcy proceedings in other states because Delaware simply would not be able to handle all the filings in a timely manner.

Congress Finds A Solution

If one judge were left to oversee the amount of Chapter 11 bankruptcy proceedings in Delaware, there would certainly be a crisis. Before this nightmare scenario became a reality, Congress took action and on May 17, 2017, authorized five permanent judgeship positions for the state of Delaware, giving it a total of six permanent judgeships. For more information on that authorization, you can read the Bankruptcy Judgeship Act of 2017. For the three month period ending June 30, 2017, there were a total of 140 Chapter 11 filings. One judge could not manage the amount of work this entails. Therefore, it was essential for Congress to act quickly to avoid a crisis in Delaware’s Bankruptcy Court.

According to the Judicial Conference, Delaware’s caseload has increased by 55 because of the amount of time it takes to adjudicate a case. This is logical since Delaware is home to 65 percent of Fortune 500 companies. When filing for bankruptcy, each one of these companies are dealing with over $100,000,000 in assets and 1,000 or more creditors. These cases become very complex. Because of the number of Chapter 11 cases in Delaware, it is paramount that Delaware’s Bankruptcy Court’s bench is full.

Continuing Bankruptcy Filings

Even losing one judge could have a detrimental effect on the bankruptcy system, not just in Delaware, but nationwide. Corporations can choose to file in the jurisdiction where they are headquartered, where they are incorporated or any other jurisdictions where they have ties, meaning they can choose other jurisdictions other than Delaware to file.

Not only would a shortage of judges in Delaware’s bankruptcy court create a hardship for the corporation filing for bankruptcy, but it would also create a hardship for the corporation’s employees. Ongoing access to bankruptcy proceedings is essential in assisting a corporation to restructure in order to allow employees to remain employed and to pay creditors.

Delaware is home to some 1,000 corporations and those that file for bankruptcy have complex cases that require a substantial amount of time to restructure. Therefore, an adequate number of judges must be available to work on these cases on an ongoing basis. Without a process that can allow bankruptcy proceedings to move along smoothly and within a reasonable amount of time, a significant number of these cases in Delaware will drop and those cases will be moved to other jurisdictions. But, since Congress took action just in time, it is safe to say that Delaware’s bankruptcy court will continue to see a large volume of cases going forward.