The bankruptcy court overseeing the Chapter 11 proceedings of Houghton Mifflin declined to rule on the question of whether the company’s case was properly filed in the Manhattan court, the company confirmed. A bankruptcy court hearing on the motion of the U.S. trustee to change the venue of the case from Manhattan to Boston was held on June 18.
Meanwhile, a spokesman for the company also confirmed that the combined hearing on approval of the company’s disclosure statement and confirmation of its prepackaged reorganization plan will be going forward tomorrow, as scheduled. Court documents show that creditors voted unanimously in favor of the company’s proposed prepackaged reorganization plan.
According to the spokesman, Bankruptcy Court Judge Robert Gerber said he would rule on the issue of venue after confirmation.
As reported, the U.S. trustee in the case on May 30 filed a motion seeking to transfer the case to bankruptcy court in Boston, arguing that Houghton’s contacts with New York “did not meet the statutory criteria necessary for the court to find that venue in this district is proper.” Among other things, Davis argued that the company admits its principle place of business is in Boston, that only 75 of its 3,300 employees are located in New York, and only 0.3% of the company’s assets are located in New York.
Houghton did not challenge Davis’ factual assertions with respect to the extent of its contact with the state, but argued that these contacts were sufficient to justify the venue, stressing the long tenure of Houghton’s operations in New York, if not their magnitude. Houghton also argued that all of the business activities of its subsidiaries, Houghton Mifflin Holding Co., – comprised of a single sublease that earned $220,000 annually – were located in New York, and that despite its small size, the bankruptcy venue for this subsidiary was a basis for the venue for all of its affiliated companies in New York as well, under the rules.
Apart from the technical legal aspects of venue, the company argued that New York was the most convenient location for all the parties involved in the Chapter 11 case, inasmuch as many of the company’s key creditors, the financial and legal advisors working on the case, lenders, and other key parties were located in New York. That argument was echoed by an informal group of first-lien lenders, which also raised the specter that a change of venue could derail an otherwise already agreed-to prepackaged reorganization.
Venue is certainly a hot topic among bankruptcy academics, not to mention some legislators who recently introduced legislation in Congress to limit venue choices, who oppose the concentration of large Chapter 11 cases in Manhattan and Delaware as forum shopping, and contend that the competition for large cases results in skewed bankruptcy decisions intended to make jurisdictions more attractive to troubled companies. That said, actual litigated challenges to venue in large corporate cases are relatively rare. – Alan Zimmerman
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