At the Crossroads Between Bankruptcy and Aviation: The Proposed Bankruptcy Venue Reform and the Imperilment of Foreign Airlines’ Availment to U.S. Bankruptcy Courts Under Chapter 11

Abstract

The COVID-19 pandemic has wreaked havoc on several of the nation’s industries, aviation being no stranger given the financial difficulties, flight cancellations, and health mandates the sector consequently faced. Despite concerns that a wave of bankruptcy filings would submerge U.S. bankruptcy courts, the domestic need for restructuring did not arise as predicted, the main reason being the federal assistance provided to enterprises in peril. On the contrary, foreign debtor airlines were the ones to avail themselves of the experience and efficiency of magnet districts for restructuring under Chapter 11 of the Bankruptcy Code. Simultaneously, large domestic corporations sought the assistance of New York and Delaware to restructure quite far from their home districts. This phenomenon, known as forum shopping, revived a spirit of congressional reform; proponents sought to condemn forum shopping as undermining the fairness and integrity of the bankruptcy system overall. Thus, Congress introduced a bill to reform bankruptcy venue and ultimately put an end to forum shopping. This Comment critically analyzes the arguments by proponents of reform—arguing in favor of a “race to the bottom” theory that condemns the practice of forum shopping—as compared with arguments by opponents of reform—perceiving the current status quo and bankruptcy venue as racing debtors to the top by having magnet districts offer expertise, efficiency, and predictability to entities in need of restructuring. In siding with “race to the top” theorists, this Comment further explains the danger reforming bankruptcy venue could have in under- mining the United States’ position as the golden standard in Chapter 11 restructuring, forcing foreign debtor airlines to avail themselves of courts in the United Kingdom (U.K.) or Singapore that are progressively becoming restructuring hotspots. Proposed alternatives to bankruptcy venue reform include remedies limiting forum shopping to protect the United States’ reputation in restructuring and preserve the rights of U.S. creditors.