Court Rejects Effort to Transfer Venue of Energy Future Holdings Bankruptcy From Delaware to Texas

In a ruling yesterday, Judge Christopher Sontchi of the United State Bankruptcy Court for the District of Delaware denied a motion by a bond trustee to transfer venue of the Dallas-based Energy Future Holdings from Wilmington, Delaware to the Northern District of Texas, citing broad support from many creditors for keeping the case before the Delaware court.

Energy Future filed for chapter 11 protection in Delaware on April 29 after reaching an agreement with some of its key secured creditors on a restructuring plan that will divide the company, refinance a portion of its secured debt and convert some of its remaining secured debt to equity.

The issue before Judge Sontchi was whether factors such as convenience of the parties, cost and fairness argued for moving the case to Texas.  The trustee for the disgruntled holders of $1.6 billion of bond debt who stand to receive little or no recovery from the currently proposed restructuring plan, argued that Texas was the more appropriate forum for the proceeding because of the profound impact of the proceedings on the company’s employees and customers in Texas, who lacked the resources to travel the long distance from Texas to Wilmington to be heard in the case.  The trustee also noted that Energy Future’s executives likely commenced the case in Delaware in order obtain broad-ranging releases from liability for themselves as part of the restructuring.  Courts in Delaware have traditionally been far more accommodating than courts in Texas in granting executives protection from lawsuits over their actions taken while at the helm of troubled companies.

At the hearing to consider the venue motion, the Office of the Texas Attorney General refused to take the stand to support the bond trustee’s assertion that the local interests of Texas were sufficiently predominant to warrant moving the case, which significantly damaged the likelihood of success in for the venue motion.

The business-friendly Delaware courts are the favored venue for chapter 11 proceedings for many companies like Energy Future that have units incorporated in Delaware, and decisions like the one rendered by Judge Sontchi yesterday underscore the uphill battle facing parties that seek to disrupt a company’s decision to avail itself of this preferred forum.

 

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