A two-judge court in Richmond, Va., increasingly is becoming a venue of choice for large companies seeking bankruptcy protection.
The U.S. Bankruptcy Court for the Eastern District of Virginia has developed a reputation among corporate restructuring practitioners as a debtor-friendly venue that issues consistent rulings while running efficient operations.
So far in 2020, 9% of large, publicly traded company bankruptcies have been filed in the Eastern District of Virginia, according to the UCLA-LoPucki Bankruptcy Research Database. That’s more than double the district’s share of major cases during the previous five years.
“Forum shopping is the story and Virginia is the flavor of the week,” said attorney Zev Shechtman of Danning, Gill, Israel & Krasnoff LLP.
Lord & Taylor, Ascena Retail Group, J. Crew, and Intelsat SA represent the large companies that filed for bankruptcy there this year following U.S. business shutdowns caused by the Covid-19 pandemic.
The recent spate of major corporate restructurings, dominated by large retailers, comes on the heels of other big names. Toys “R” Us Inc., Gymboree Corp., and Pier 1 Imports Inc. all headed to Richmond in recent years in an effort to revive their brands in the wake of a “retail apocalypse.”
Five of the 15 “mega cases” that were filed in the Eastern District of Virginia came just this year, according to the court’s website. Mega cases have at least 1,000 creditors and concern more than $100 million in assets, according to the Administrative Office of U.S. Courts.
Large struggling companies often file for bankruptcy outside of the state where they’re headquartered. Bankruptcy rules are lenient on venue selection, often allowing debtors to undergo restructuring in any region where they conduct business.
But the uptick in Richmond is particularly notable, highlighted by some notable firms bringing cases there.
Kirkland & Ellis LLP is listed as bankruptcy counsel in the bulk of the Eastern District of Virginia’s mega cases, indicating a degree of comfort by one of the nation’s premier corporate debtor law firms. Weil Gotshal & Manges LLP, another heavy hitter in the bankruptcy space, is currently representing J. Crew there.
Unlike some other major Chapter 11 courts, Richmond operates with only two judges: Kevin Huennekens and Keith Phillips. In comparison, the courts in Wilmington, Del., and New York each have seven.
But the number of judges hasn’t deterred practitioners who seek massive reorganization efforts on a tight timeline. Many say it’s actually an attractive feature.
“The firms that specialize in large corporate cases like that venue because the judges are reliable, somewhat predictable, and consistent,” said Richmond-based bankruptcy lawyer Doug Foley of McGuireWoods LLP.
The judges also have a track record of handling complex cases, said attorney Richard Kanowitz of Haynes and Boone LLP. “So there’s no risk to filing,” he said.
The court also has adapted to the judicial emergency arising from Covid-19 and embraced procedures for remote participation in court proceedings, said McGuireWoods attorney Sarah Boehm.
Consistent, prompt rulings have yielded tangible benefits for clients in Richmond, attorneys say.
Kirkland notably shielded Pier 1 Imports Inc. from monthly rent payments during the height of retail business closures earlier this year while the company negotiated a liquidation plan.
Judge Huennekens “bent over backwards” to accommodate the company in that circumstance, said Schechtman. “Clearly there is a willingness to do things for debtors that are not landlord-friendly,” he said.
Ascena Retail Group, the owner of Ann Taylor and Lane Bryant, also asked for a timeout from paying its landlords and eventually resolved the issue. Yet of Ascena’s more than 60 related debtor entities, only one is incorporated in Virginia, Shechtman said.
The Richmond court is also efficient at approving fees, attorneys say.
Bankrupt companies need court authorization for all estate-paid expenses, including legal bills. Some smaller jurisdictions may balk at big firms’ requests to pay more than $1,100 an hour for attorney fees.
The Eastern District of Virginia aligns with the large Chapter 11 venues where “nobody blinks at that” fee, said Kenneth Rosen, Lowenstein Sandler LLP’s bankruptcy practice chair.
And legal advice from the big firms isn’t cheap. Kirkland hauled in almost $56 million in fees for advising Toys “R” Us from September 2017 through December 2018, with some partners charging more than $1,500 an hour for their time.
Commercial debtors’ attorneys are inclined to go where they’ve had good experiences and where it’s “likely that fee applications will be approved promptly and easily,” said Schuyler Carroll of Loeb & Loeb LLP.