Legal News

Chrysler: Detroit?s Pain is New York?s Gain

By Nathan Koppel

It's official: Chrysler has filed for Chapter 11 in Gotham. Judge Arthur Gonzalez, who oversaw the Enron bankruptcy, will preside over the matter.

We have to imagine that there are many restructuring professionals in Detroit who are none too happy. Bankruptcy venue is a heated topic. Critics say that public companies file so often in New York and Delaware, because judges there are more apt to give debtors what they want, even if workers and creditors are the worse for it.

But many lawyers counter that New York and Delaware are popular venues, because the judges there are experienced in handling mega cases and bankruptcy law is highly evolved; thus, the argument goes, outcomes are more predictable in Manhattan and Wilmington. Many top restructuring professionals have stories about supposedly wacky rulings by bankruptcy judges in the provinces.

Click here and here for statistics from BankruptcyData.com, which show just how much power is wielded by the two Chap. 11 hotspots. Last year, for example, 62 of the 138 public-company bankruptcy filings landed in Delaware or the Southern District of New York; those 62 companies accounted for a whopping 93 percent of all of the public-company assets that were parked in bankruptcy court. So far this year, the 10 largest Chapter 11s — make that the 11 largest Chapter 11s– have all landed in . . . you guessed it.

Whether or not the NY/DE juggernaut is benign, this much is certain: there is some serious money on the line. Detroit professionals say Chrysler's New York restructuring will be more expensive and less convenient for many creditors, such as parts suppliers, that are based in the Midwest. The New York filing also likely means less in fees for Detroit lawyers and accountants.

"The Detroit bankruptcy bench is more than suitable to handle" the Chrysler matter, Detroit-area lawyer Stephen Gross says. A Detroit judge, he adds, may be more apt than one near Wall Street to stick it to bondholders — a major constituency in the Chrysler case. "Judges here realize the magnitude of what will happen if [Big 3 auto] companies were to go out of business. The judge live in these communities."

Full post as published by Law Blog - WSJ.com on April 30, 2009 (boomark / email).