Why did Bellingham-based Haggen file for bankruptcy in Delaware?

Haggen is based in Bellingham and all its stores are on the West Coast. But when the grocery chain’s lawyers filed for chapter 11 bankruptcy last week, they did it in Delaware.

The struggling grocer isn’t alone in filing for bankruptcy in Delaware even though its headquarters are elsewhere. The bankruptcy court in Wilmington, Delaware, is one of the two most popular places for corporations to go bankrupt—the other is the New York Southern District Bankruptcy Court in White Plains, New York.

“The bankruptcy courts in Delaware are better setup and familiar with these big cases,” said Steven Hathaway, a Bellingham bankruptcy attorney who is not working on the Haggen case. “They’re geared toward these huge cases.”

The judges, clerks and staff in Delaware bankruptcy court are familiar with how to handle the huge volume of paperwork required by big cases like Haggen’s, Hathaway said.

Companies who file for bankruptcy in Delaware or New York are significantly more likely to survive, according to a paper published earlier this year in UCLA Law Review. 

The day after Haggen filed for bankruptcy, Quiksilver, makers of surf-inspired clothing, also filed for bankruptcy in Delaware. Quiksilver is based in Huntington Beach, California. An oil and gas drilling company called Hercules Offshore, RadioShack, and Colt—makers of the Colt 45 and other firearms— all filed for bankruptcy in Delaware this year, and none of them are based there.

Another reason for so many bankruptcy filings in Delaware is that many national companies are incorporated there. That’s the case for Haggen, as well as Albertsons and some of Haggen’s other creditors in its bankruptcy case.

Delaware provides an income tax exemption for companies incorporated in the state, according to a paper by Sheldon D. Pollack, a professor of law and political science at the University of Delaware.

“As is widely known among tax lawyers, Delaware is a domestic tax haven,” Pollack said in the paper. It’s not, he notes, an international tax haven.

Nearly half of all public corporations in the United States are incorporated in Delaware, according to a 2012 New York Times report.  The report says that more than 285,000 separate businesses used a single office building in Wilmington as their legal address in 2012.

 

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