Delaware Chapter 11s

It is hardly news to the bankruptcy community that the District of Delaware has
become a preferred venue for large chapter 11 cases over the last decade. Within
the past five years, the National Bankruptcy Review Commission proposed amending <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&amp;vr=1.0&amp;cite=…
U.S.C. §1408</a> to prohibit a corporation from filing in a district based solely
on its state of incorporation,<small>^{<a href="#2" name="2a">2</a>}</small> the Judicial Conference of the United States received
a report on chapter 11 venue choices made by large public companies,<small>^{<a href="#3" name="3a">3</a>}</small> and academic
commentators weighed in heavily with data and commentary on the significance of venue
choice in large chapter 11 reorganizations.<small>^{<a href="#4" name="4a">4</a>}</small> This article will summarize the filing
trends from 1990-2001 and emphasize that filing numbers in chapter 11 need
to be interpreted with particular care.<small>^{<a href="#5" name="5a">5</a>}</small>

</p><h3>Case Filings</h3>

<p>The most common measure of chapter 11 activity is the annual number of chapter
11 filings. Between 1990 and 2001, there were 7,187 chapter 11 cases
filed in Delaware, with the bulk occurring in the last three years. As shown in
the following chart, Delaware has accounted for a significant percentage of chapter
11 filings nationwide since 1999.

</p><p>Many chapter 11 cases in Delaware involve multiple filings by related entities,
and ignoring this fact may give a distorted picture of chapter 11 activity there.
Some cases, particularly those filed since 1999, have a large number of related
filings. For example, between 1999 and 2001 there were 10 cases filed in
Delaware that had at least 100 other related filings. Largest among these was
Loewen Corp., whose filing in June 1999 included 871 corporations or related
entities. This case accounted for nearly 10 percent of the national chapter 11
filings for the year.

</p><p>To discern if two or more cases were related, we compared filing dates, state of
origin, case name and disposition dates. If at least two of these items matched,
we concluded that the filings were related. We thereby run a slight risk of
overestimating the number of cases with related filings.<small>^{<a href="#6" name="6a">6</a>}</small> On this basis, the Delaware
chapter 11 filings between 1990 and 2001 can be characterized as 537 solo
filings and 330 other cases with one or more related cases. By this measure,
although chapter 11 activity in Delaware has been higher for the last three years,
the increase has been much less than that indicated by raw filings.

</p><p>Delaware does account for a substantial portion of the largest cases that are
filed. BankruptcyData.com publishes a list of the 15 largest cases filed by
publicly held companies each year. Of the 105 large cases listed for 1995
through 2001 (15 for each year), 56 were filed in Delaware. The Southern
District of New York accounted for 18 of the large cases. No other judicial
district had more than three large cases.

</p><h3>Origin of Cases</h3>

<p>To determine the origin of the chapter 11 cases filed in Delaware, we reviewed
the debtors' mailing addresses. We found that 94 percent of the Delaware chapter
11 debtors (including related filings) listed a non-Delaware address. On the other
hand, for the rest of the country, only about 5.3 percent of chapter 11 filings
were from out of state.<small>^{<a href="#7" name="7a">7</a>}</small> States with the most debtors filing in Delaware (including
all related filings) were Ohio (998), Maryland (596), Pennsylvania (527),
Texas (471), Florida (423) and Massachusetts (400).

</p><p>Unfortunately, our method does not identify the lead filing in every case with
related filings. Nevertheless, our best estimate of the states that had the most
debtors file in Delaware between 1990 and 2001 included New York (65),
Texas (55), Pennsylvania (46), California (44), Florida (42) and New
Jersey (42).

</p><h3>Confirmation Rate</h3>

<p>The large number of related filings also gives a misleading picture of the
confirmation rate in Delaware. Including the related filings, nearly 80 percent of
the cases filed there between 1990 and 1999 (2,907 out of 3,688)
have been confirmed.<small>^{<a href="#8" name="8a">8</a>}</small> Discounting the related cases, the confirmation rate falls to
52.8 percent (347 out of 657). This figure is still much higher than the
national average confirmation rate (29.0 percent) for chapter 11 cases filed
during the 1990s. The median and average intervals from filing to confirmation of
Delaware cases fall below the national average when the related filings are excluded.

</p><p>According to the official filing statistics reported by the Administrative Office of
the U.S. Courts, there have been well over 5,000 chapter 11 cases filed in
Delaware in the last three years. However, the large number of related entities in
these filings can provide a distorted picture. Most bankruptcy observers would be more
interested to know that, if one considers related cases as part of a single large
filing rather than as individual cases, there have actually been only about 305
chapter 11 cases filed in Delaware during that period.

</p><p></p><center><img src="/AM/images/journal/bbtn3-02chart1.gif" align="middle" height="253" hspace="5" vspace="5" width="497">

<p><img src="/AM/images/journal/bbtn3-02chart2.gif" align="middle" height="252" hspace="5" vspace="5" width="497">

</p><p><img src="/AM/images/journal/bbtn3-02chart3.gif" align="middle" height="135" hspace="5" vspace="5" width="497"></p></center>

<hr>
<h3>Footnotes</h3>

<p>^{<small><a name="1">1</a></small>} All views expressed in this article are those of the authors, and do not necessarily represent the views of the Executive Office
for U.S. Trustees or the Department of Justice. <a href="#1a">Return to article</a>

</p><p>^{<small><a name="2">2</a></small>} National Bankruptcy Review Commission, "Bankruptcy: The Next Twenty Years," 770-787 (1997). <a href="#2a">Return to article</a>

</p><p>^{<small><a name="3">3</a></small>} Bermant, Gordon, et al., "Chapter 11 Venue Choice by Large Public Companies: Report to the Judicial Conference Committee
on the Administration of the Bankruptcy System," Federal Judicial Center, 1997. <a href="#3a">Return to article</a>

</p><p>^{<small><a name="4">4</a></small>} Eisenberg, Theodore and LoPucki, Lynn M., "Shopping for Judges: An Empirical Analysis of Venue Choice in <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&amp;vr=1.0&amp;cite=… Chapter 11
Reorganizations," 84 Cornell L.Rev. 967 (1999)</a>. <a href="#4a">Return to article</a>

</p><p>^{<small><a name="5">5</a></small>} Statistics for this article were obtained from the Fee Information and Collection System (FICS) database maintained by the
Executive Office for U.S. Trustees to support collection of quarterly chapter 11 fees. The FICS database does not include any information
on chapter 11 cases filed in Alabama and North Carolina, which are served by bankruptcy administrators. <a href="#5a">Return to article</a>

</p><p>^{<small><a name="6">6</a></small>} Chapter 11 cases are classified as consolidated substantively (all activity is applied to the lead case), or administratively
(cases are viewed as independent by the bankruptcy court but dependent for administrative purposes). <a href="#6a">Return to article</a>

</p><p>^{<small><a name="7">7</a></small>} The FICS database allowed us to determine the number of cases filed in a different state than the address listed by the debtor.
However, we were not able to determine the number of cases in which the debtor was located in a different judicial district than the district
of filing, but within the same state. <a href="#7a">Return to article</a>

</p><p>^{<small><a name="8">8</a></small>} We did not include cases filed during 2000 and 2001 because many of these cases are still awaiting confirmation, conversion
or dismissal. <a href="#8a">Return to article</a>