Chapter 1 Basics of Bankruptcy Venue, Transfer of Cases

• Jurisdiction: United States

1. Basics of Bankruptcy Venue, Transfer of Cases

Written by:

Thomas M. Horan

Womble Carlyle Sandridge & Rice LLP

Wilmington, Del.

Ericka Fredricks Johnson

Womble Carlyle Sandridge & Rice LLP

Wilmington, Del.

The question of where to file a bankruptcy case does not always have an obvious answer. The debtor may be incorporated in a state other than where its operations are located or where it is headquartered. Where there are multiple related debtors filing cases at the same time, the question becomes even more complex.

For creditors and other interested parties, the question arises as to what can be done in cases where the debtor's chosen venue may be improper or objectionable. To understand how to address these questions, one needs to understand the venue provisions and the procedure for seeking transfer of a case.

A. Applicable Provisions of the Judicial Code

Venue in a bankruptcy case is governed by § 1408 of title 28 of the U.S. Code.¹ Section 1408 provides that a debtor may file its bankruptcy case (1) in any district court where the debtor's domicile, residence, principal place of business, or principal assets are located, or (2) in any district court where an affiliate, general partner, or partnership of the debtor has a case pending.² This statute often gives a debtor—particularly a commercial debtor—several potential filing locations. Accordingly, planning for a chapter 11 filing routinely includes an analysis to identify the most appropriate venue.

While § 1408 and related case law provide debtors significant flexibility in selecting venue, that power is not unlimited. A party in interest may request a transfer of venue or the court may transfer venue sua sponte. The statutory bases for transferring venue are 28 U.S.C. §§ 1404, 1406 and 1412. Each of the statutes uses similar language regarding transferring venue for convenience and/or in the interests of justice. Additionally, Bankruptcy Rule 1014 allows for the transfer of a bankruptcy case following its commencement if the venue is found to be improper or, even if proper, for other reasons that generally mirror the statutory bases, including if the transfer is "in the interest of justice or for the convenience of the parties."

B. Rule 1014 Generally

Bankruptcy Rule 1014³ is divided into two parts. The first part governs the transfer or dismissal of cases filed in a proper, but inconvenient, district or an improper district. Specifically, Bankruptcy Rule 1014(a)(1) provides that, if the case was filed in the proper district, on a timely motion by a party in interest or by its own motion, the court may transfer a case to any other district in the interest of justice or for the convenience of the parties. In 2007, Bankruptcy Rule 1014 was amended to clarify that the court could sua sponte transfer venue. The prior rule did not include the language allowing the court to transfer venue by its own motion, so the amendment laid any doubts to rest and adopted the generally held view that the court could transfer venue by its own motion.

Bankruptcy Rule 1014(a)(2) governs cases filed in an improper district. If filed in an improper district, the court, on a timely motion by a party in interest or by its own motion, may dismiss the case or transfer it in the interests of justice or for the convenience of the parties. The primary difference between filing in a proper or improper district is that if improper, the court can decide to dismiss the case rather than transfer it to the proper district⁴

The second part of Bankruptcy Rule 1014 resolves the potential conflict that arises when petitions involving the same or related debtors are filed in different courts.⁵ Bankruptcy Rule 1014(b) authorizes a court in the district in which the first petition is filed to determine the district or districts in which the case or cases should proceed. Further, any proceedings in any cases filed after the first petition has been filed are stayed until the court determines the venue issue.

C. When Is Transfer Appropriate?

Regardless of whether the case was filed in the proper district, when determining whether transfer of a bankruptcy case is warranted "for the convenience of the parties," courts have considered, among others, the following factors:

1. proximity of creditors to the court;
2. proximity of the debtor;
3. proximity of witnesses who

...