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Chris Coons at a campaign event. REUTERS Tim Shaffer

Delaware's Coons takes over Senate subcommittee on bankruptcy

2/1/2013 COMMENTS (0)

By Tom Hals

WILMINGTON, Del., Feb 1 (Reuters) - The appointment of U.S. Senator Chris Coons to head a key Senate subcommittee on bankruptcy is likely to help maintain the federal bankruptcy courts in Delaware and New York as the top venues for big restructuring cases.

While critics have said that the bankruptcy courts in New York and Delaware are too cozy with big corporations, Coons, a Democrat from Delaware, has opposed any change.

A spokesman for Coons, Ian Koski, said on Friday that bankruptcy courts in Delaware and New York have developed an expertise in large corporate bankruptcies that "gives them the best chance to get to the right outcome for everybody."

That expertise allows bankrupt businesses to salvage their operations, avoiding a liquidation that costs jobs, Koski said.

Coons was approved on Thursday by the Senate Judiciary Committee to head the Subcommittee on Bankruptcy and the Courts, which has oversight of bankruptcy, court administration and legal reform.

In 2011, a bipartisan bill was introduced in the House Judiciary Committee to force companies to reorganize in the federal district that hosted their main business or assets.

The bill was aimed at increasing the role played by smaller creditors and employees in Chapter 11 cases. It was prompted in part by Houston-based Enron Corp and Detroit-based General Motors Corp, which both filed for bankruptcy in Manhattan. The companies were able to establish venue by first putting a New York subsidiary into bankruptcy - in the case of GM, it relied upon a Harlem car dealer.

The bankruptcy court in Delaware has handled the bankruptcies of the Los Angeles Dodgers baseball team, media conglomerate Tribune Co and lender Washington Mutual Inc. None had significant operations in Delaware but were able to file there because it was the state of incorporation.

Although hearings were held on the 2011 bill, it did not make it out of the committee. Coons said at the time that he opposed the bill.

Restructuring advisers say they prefer the experienced judges, speed and consistency of the New York and Delaware courts.

One of the most vocal critics of the Delaware court, UCLA Law School professor Lynn LoPucki, has argued the court has been corrupted by its desire to remain dominant and is overly favorable to debtors and their advisors.

Coons was elected in 2010. He defeated Republican Christine O'Donnell in a special election to fill the seat left open when Joe Biden became the U.S. vice president.

Delaware's bankruptcy lawyers are likely to welcome Coons new role.

"We think he understands what Delaware has to offer and why it's important," said Mark Minuti, a bankruptcy attorney with Saul Ewing in Wilmington and vice president of the state bar's bankruptcy section.

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