From Bloomberg News:
A bipartisan bill sponsored by leaders of the House Judiciary Committee may strip Delaware of its status as the premier venue for U.S. bankruptcy cases, costing the state’s economy an estimated $100 million a year.
… The UCLA database shows that 155 public companies with assets of more than $500 million sought bankruptcy protection in Delaware from 2000 to 2011. That is 38 percent of the U.S. total of 405. New York’s Southern District, which includes Manhattan, was second with 93 cases, or 23 percent.
Basically, the law would mandate “a corporation may file for Chapter 11 reorganization only in the federal district housing its principal place of business or assets,” thereby eliminating Delaware from most bankruptcy cases.
The Bloomberg article estimates an impact of $100 million. However, this grossly understates the impact. Delaware’s Escheat (or abandoned property) revenue stream, itself, is over $400 million — about 12% of the State budget. Delaware’s share of escheat is so high because escheat is payable by a company to the State of its incorporation, and the Smith-Conyers bill would remove the need for many companies to incorporate in Delaware. Our $400 million windfall could drop to under $10 million relatively quickly.
In addition to that direct impact, the State would lose significant amounts of bank franchise taxes & corporate franchise taxes (combined around 24% of the State’s budget).
Some firms might move or shrink if bankruptcies dry up, said Charles M. Elson, director of the University of Delaware’s Center for Corporate Governance. The change would cut the state’s wage and property tax revenue and hurt businesses like restaurants and copying services — “an impact we don’t need,” he said.
So, while the “Occupy Anywhere” folks are protesting against capitalism, Delaware could very quickly find out what it means to not have companies incorporated here.