| WILMINGTON, Del, April 29
WILMINGTON, Del, April 29 Energy Future Holdings
is all Texas: It's the state's biggest power company with the
state's largest network of power lines, and it is run by a
But when Energy Future's owners filed for bankruptcy early
Tuesday, they went to a court more than 1,000 miles away, in
Wilmington, Delaware. That immediately sparked an unusual,
long-shot bid by a group of creditors to move one of the biggest
bankruptcies in U.S. history to Dallas, an indication that
creditors believe they could get a fairer shake outside of
"I think it was naked forum-shopping" to file in Wilmington,
Ed Weisfelner, a lawyer for the group, told Reuters. "You
scratch your head as to what this case is doing there."
The dispute over where to hear the case risks bogging the
restructuring down for weeks, particularly if Texas politicians
and regulators support the move, and it could eventually lead to
Energy Future's bankruptcy filing came on the heels of more
than a year of complex negotiations with a diverse group of
creditors who were owed more than $40 billion. The company says
it has reached the framework of a restructuring with its biggest
creditors and that it wants to exit bankruptcy in less than a
Weisfelner's group, which mostly consists of sophisticated
funds accustomed to investing in distressed companies, could get
nothing as things currently stand.
In arguing for a change of venue, Weisfelner cited the added
expense of sending the company's executives, regulators and
local creditors to Delaware. He also noted that Texas has been
the venue for the bulk of more than 200 lawsuits involving
Energy Future since 2012.
Energy Future has not filed a response in court to
Weisfelner's motion. A company spokesman said Delaware is the
proper venue for the bankruptcy, since several of its corporate
entities are incorporated there.
"The major issues in our restructuring involve our financial
structure, rather than our high-performing operations or other
constituents based in Texas such as our employees, customers or
others," spokesman Allan Koenig told Reuters.
Wilmington and New York City are the preferred jurisdictions
to file corporate bankruptcy cases. Many bankruptcy
professionals say the two courts are more efficient and
experienced in handling large, complex turnarounds with billions
of dollars at stake.
Weisfelner, a bankruptcy guru known for representing
creditors, is challenging the company's position that his
clients, which are owed about $1.5 billion in low-priorty bonds,
are out of money.
Weisfelner said he wants a trial to determine the company's
value. He's concerned, he said, that the Delaware court might
allow Energy Future to forgo such a hearing, while a Texas court
might be more willing to hold one.
In addition to seeking a change of venue, his group is
demanding the right to subpoena witnesses and information from
Energy Future, in order to try to prove that the company has the
ability to repay them.
To be sure, it may be in Weisfelner's interest to raise as
many obstacles as he can to a quick reorganization. Barring some
action by the court or concessions from other creditors, his
group does not figure to see any recovery.
Energy Future was formed in 2007 in a record $45 billion
buyout of TXU Corp by KKR & Co, TPG and Goldman
Sachs' private equity arm. The deal loaded the company
with debt just before new drilling technology depressed natural
gas prices and in turn prices for the company's electricity.
Critics have long complained that the Wilmington and
Manhattan bankruptcy courts bend over backwards to please
lawyers that represent bankrupt companies, often to the
detriment of creditors and employees.
Lynn LoPucki, a law professor at the University of
California Los Angeles, describes a form of quid pro quo in his
book "Courting Failure": The court tends to defer to the wishes
of debtors while approving big legal fees, so lawyers bring
almost every sizeable case to one of those courts. LoPucki
declined to comment on Tuesday.
Companies have a lot of leeway as to where they file. The
federal bankruptcy code allows them to file where their
headquarters are located, where they have significant assets, or
where they are incorporated -- which for most U.S. companies
There often is not an obvious connection between the
bankrupt company and Wilmington.
In recent years, for example, the bankruptcies of the Los
Angeles Dodgers baseball team, savings and loan company
Washington Mutual, and the owner of the Chicago Tribune and Los
Angeles Times newspapers all took place in the Wilmington
Bankrupt companies have often taken clever routes to get to
a preferred court, including using an obscure subsidiary to
establish the "venue hook."
General Motors, for example, established jurisdiction in
Manhattan in 2009 by first filing a bankruptcy petition for a
unit that consisted of a single dealership in Manhattan's Harlem
neighborhood. The rest of the corporate family followed
Still, fights over venue in bankruptcy are rare, and only 26
large cases have been transferred since 1989, according to
LoPucki's extensive bankruptcy database.
Texas Senator John Cornyn led one failed bid when he was
attorney general of his state to remove Enron Corp's bankruptcy
from Manhattan back to its home base of Houston.
In 2012, Patriot Coal Corp became one of the biggest cases
transferred -- to St. Louis from Manhattan. Just weeks before
filing for bankruptcy, the company incorporated a New York
subsidiary, with a Capital One Bank checking account with
$97,985 as its principal asset, as its venue hook.
Judge Shelley Chapman decided that was going a step too far.
"Nothing in our jurisprudence requires the court to condone
every strategy devised by clever lawyers to outsmart statutory
purpose and language," she wrote when transferring the case.
Weisfelner has requested that Judge Christopher Sontchi
consider his motion to transfer the venue to Dallas as soon as
possible, but the court has not scheduled its initial hearing in
(Reporting by Tom Hals in Wilmington, Delaware and Nick Brown
in New York; editing by Andrew Hay)