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The Bottom Line
On March 16, 2026, Judge Michael B. Kaplan of the United States Bankruptcy Court for the District of New Jersey (the "Court") issued a letter opinion denying the motions by the United States Trustee (the "U.S. Trustee") and an ad hoc cross-holder group (the "Cross-Holders") to dismiss or transfer the Chapter 11 cases of Multi-Color Corp. and its affiliates ("Multi-Color"). Judge Kaplan, applying an "Asset-Based Approach" to the venue statute, concluded that venue in New Jersey based on a dormant Debtor's recently opened bank accounts was proper under the plain language of the Bankruptcy Code's venue requirements, noting that it was not the Court's obligation to "close loopholes in legislation."1 The Court further found that neither dismissal nor transfer of the case was warranted.
The opinion highlights that absent (i) Congressional action on permissible venue for bankruptcy cases or (ii) a debtor taking actions approaching bad faith to manufacture venue, courts will apply the plain language of the Bankruptcy Code's venue statute and allow a debtor to remain in the jurisdiction of its choice so long as it clears the relatively low bar of qualifying criteria.
Background
On January 29, 2026, Multi-Color and its 55 affiliates (the "Debtors") filed prepackaged Chapter 11 cases in the Bankruptcy Court for the District of New Jersey (the "Petition Date"). Among those affiliated debtors was MCC-Norwood, LLC ("MCC-Norwood"), a dormant Ohio entity formed in 2014 that ceased operations about three years prior to the Petition Date. MCC-Norwood has never had any of its own customers or employees and was formed as an acquisition vehicle for the Debtors' purchase of a manufacturing facility in Ohio. The Debtors subsequently closed and sold the facility in 2023.
About six weeks before the Petition Date, MCC-Norwood opened two bank accounts at banks in New Jersey. Sixteen days before the Petition Date, the Debtors funded the accounts. As of the Petition Date, the balances in the accounts were approximately $1.05 million (the "Adequate Assurance Account") and $1,000 (the "DIP Account," and together with the Adequate Assurance Account, the "Bank Accounts"), respectively.2 MCC-Norwood's petition listed Atlanta, Georgia as MCC's principal place of business and was amended to reflect that MCC-Norwood's primary assets were located in New Jersey.3
MCC-Norwood's petition listed principal assets located in New Jersey and thus MCC-Norwood was the basis for venue in the District of New Jersey. The remaining Debtors relied on the pending case of its affiliate as their basis for venue under 28 U.S.C. Sections 1408(2).4 The Cross-Holders filed a motion to dismiss, or, in the alternative, transfer venue of the Chapter 11 cases. The U.S. Trustee filed a motion to (i) dismiss the case of MCC-Norwood pursuant to 11 U.S.C. Section 1112(b) and (ii) transfer venue or dismiss all cases pursuant to 28 U.S.C. Sections 1406, 1408, and 1412 and Bankruptcy Rule 1014(a).
The Cross-Holders and the U.S. Trustee (together, the "Movants") argued that venue in New Jersey was improper under 28 U.S.C. Section 1408 and that the cases must therefore be dismissed or transferred. The U.S. Trustee also moved to dismiss MCC-Norwood's Chapter 11 case under Section 1112(b) for lack of good faith. An evidentiary hearing was held on February 26, 2026.
The Bankruptcy Venue Statute
The Court began with an overview of the legislative history of the bankruptcy venue statute, 28 U.S.C. Section 1408. The statute allows a debtor to file in any district where its domicile, residence, principal place of business, or principal assets were located (i) during the 180 days preceding the Petition Date or (ii) for a longer portion of that period than in any other district.5 The Court explained that the statute is deliberately broad, and that Congress has repeatedly declined to reform and amend the statute. As the statute "remains broad by design", the Court declared at the outset it would apply the plain text of the statute.6
The Court noted that the language of the statute demands a two-fold inquiry: The Court must first identify the debtor's principal assets and then determine where those principal assets were located during the longer portion of the 180 days leading up to the debtor's bankruptcy filing.
"Time-Based Approach" versus "Asset-Based Approach"
Judge Kaplan discussed at length how courts should identify and analyze what constitute a debtor's "principal assets." The Movants proposed a "Time-Based Approach" focused on identifying which of the Debtor's assets were "principal" on each day of the 180-day period and deeming the asset held for the longest time as principal.7 Under their approach, because the funded accounts only existed for 16 days before the Petition Date, other assets would constitute MCC-Norwood's principal assets for a majority of the 180-day period.8
After working through several hypotheticals, Judge Kaplan ultimately rejected the Time-Based Approach and adopted and applied an Asset-Based Approach, which "evaluates the assets that a debtor possesses at the time the petition is filed and where such assets were located for the longer portion of the Venue Period[.]"9 The Court found that the Asset-Based Approach produced more logical results and more closely aligned with the "functional concerns" of administering a bankruptcy case.10
Bank accounts as principal assets
Applying the Asset-Based Approach, the Court then evaluated MCC-Norwood's assets to determine which asset constituted its principal asset on the Petition Date. In doing so, the Court examined the Debtors' assets from both quantitative and qualitative perspectives and with a focus on the value and importance of the assets in question. It concluded that the Bank Accounts were the Debtors' principal assets as of the Petition Date, and that because those assets were located in New Jersey longer than in any other district during the Venue Period, venue in New Jersey was proper.11
As a threshold matter, the Court reasoned that the decision aligns with precedent caselaw holding that recently-opened bank accounts can serve as a basis for venue. The Court rejected the U.S. Trustee's argument that bank accounts are intangible assets and, as such, follow the domicile of the debtor under the doctrine of mobilia sequuntur personam. Instead, Judge Kaplan concluded that deposit accounts are located where they are opened, maintained, and controlled. In this case, the accounts were opened, maintained, and controlled at a New Jersey bank branch governed by New Jersey law.12
The Court also rejected the U.S. Trustee's argument that the Bank Accounts should not provide a basis for venue given that they were opened only a few weeks before the Petition Date. Specifically, Judge Kaplan held that the statute does not require assets to exist for the entire 180 days but mandates only that during the 180-day period the principal assets are located in that district for a longer time period than in any other district. Nor does it "require longevity of ownership, historical nexus, operational activity, or a qualitative business purpose."13
Ruling out other assets
In response to arguments by the Movants that the Bank Accounts were not MCC-Norwood's principal assets, the Court analyzed which of MCC-Norwood's assets were most important, consequential or influential and ultimately concluded that none of MCC-Norwood's other assets could be considered its principal assets for venue purposes:
- Patents. MCC-Norwood owned five U.S. patents and seven foreign patents throughout the entire 180-day period. The Court concluded Movants failed to meet their burden of demonstrating, by a preponderance of the evidence, that the patents were more important, consequential or influential than the balance of the Bank Accounts (out of which the Debtors would make adequate assurance payments, among other things, during the Chapter 11 cases).14
- Intercompany Balances. The Debtors' books and records contained certain entries that the Cross-Holders cited as alternative principal assets. However, the Court relied on the unrebutted expert testimony that the intercompany receivables were accounting entries lacking any economic substance and should have been eliminated contemporaneously with the closure and sale of MCC-Norwood's manufacturing facility in 2023. The Movants suggested that the elimination of those entries might give rise to avoidance actions, but the Court noted that "hypothetical, unfiled, contingent litigation rights do not transform internal ledger balances into principal assets for venue purposes."15
- D&O Insurance. The Court quickly concluded that Movants failed to demonstrate that MCC-Norwood's D&O insurance policies, though property of the estate, were so important and so valuable to MCC-Norwood that they would displace the Bank Accounts as the principal assets.16
The US Trustee's motion to dismiss for bad faith
The U.S. Trustee relied on In re LTL Management, LLC, 64 F.4th 84 (3d Cir. 2023), to separately seek dismissal of MCC-Norwood's bankruptcy case for alleged bad faith due to MCC-Norwood's lack of operations (among other things). The Court rejected this argument because even under LTL Management, "distress plus valid reorganizational purpose equals good faith."17
The Court distinguished LTL Management for a number of reasons, including the fact that MCC-Norwood was not a newly created entity formed for the purpose of a Texas Two-Step as was the case in LTL Management.18 Judge Kaplan further explained that MCC-Norwood was in genuine financial distress because (i) it had guaranteed $5.5 billion in funded debt, (ii) it was jointly and severally liable with all other related Debtor entities, (iii) it was balance sheet insolvent, (iv) it had no independent cash flow, and (v) it faced matured and accelerated liabilities.19 Accordingly, the absence of operations does not negate financial distress: "For a guarantor entity, the absence of revenue in the face of billions in liability underscores such financial distress."20 Judge Kaplan concluded that MCC-Norwood's bankruptcy filing served a valid business purpose where the reorganization sought to restructure funded indebtedness across the enterprise (i.e., MCC-Norwood's Chapter 11 case was part of a "traditional balance sheet restructuring"). In short, there was no bad faith.21
Transfer not warranted
Even where venue is proper under Section 1408, a court may exercise its discretion to transfer venue to another district "in the interest of justice or for the convenience of the parties."22
Judge Kaplan found that the interests of justice and the convenience of the parties here did not weigh in favor of transferring the cases to another venue and emphasized the importance of continuity over interruption of the bankruptcy cases. He noted that transferring the cases would necessarily delay proceedings and require the transferee court to familiarize itself with the cases, whereas Judge Kaplan had already entered a scheduling order, set confirmation timelines, supervised first-day relief, addressed various emergent motions, and invested judicial resources.23 The delay associated with any transfer would increase administrative costs and might disrupt milestones in the Debtors' financing documents and restructuring support agreement. The Court further found a lack of prejudice to the interests of stakeholders where the vast majority of creditors had already signed on to the restructuring support agreement, and the Cross-Holders had submitted a competing debtor-in-possession (DIP) financing proposal which demonstrated their assent to the bankruptcy case moving forward in New Jersey.24 Accordingly, the Court concluded that transferring venue would create uncertainty for all parties in interest, and in light of no countervailing convenience or fairness factors, transfer was not warranted.25
Judge Kaplan concluded with a "gut check," noting that while he was somewhat uncomfortable with the machinations taken to manufacture venue, the plain language of the statute required this outcome: "[N]o party can deny that the Norwood Accounts were opened so that MCC-Norwood could file in this district .... To the extent this does not 'sit right' with the parties in interest, the Court shares that sentiment."26 Despite the clear fact that the Bank Accounts were opened to serve as a basis for venue in New Jersey, Judge Kaplan deferred to Congress to "close loopholes in [venue] legislation,"27 and noted that the Court must adhere to Congress' intent when it "elected to broadly draft—and decline to tailor—the venue statute."28
Key takeaways
Judge Kaplan's ruling aligns with a substantial body of precedent holding that absent "eve of filing" steps taken to manipulate venue,29the intentionally broad language of the underlying statute gives potential debtors substantial latitude to file bankruptcy in their venue of choice.30 To the extent that this outcome does not "sit right" with parties in interest, the burden is ultimately on Congress to modify and narrow the underlying venue statute.
Footnotes
1 In re Multi-Color Corp., et al., No. 26-10910 (MBK), ECF 458 (Bankr. D. N.J. March 16, 2026) (the "Opinion") at 28.
2 Id. at 2 – 3.
3 Id. at 3, 5.
4 In re Multi-Color Corp., et al., No. 26-10910-MBK, ECF 6 (Bankr. D. N.J. Jan. 29, 2026) (MCC-Norwood Petition); see Opinion at 2.
5 See 28 U.S.C. § 1408(1) (a voluntary petition may be filed in the district "in which the... [debtor's] principal assets ... have been located for the one hundred and eighty days immediately preceding [the petition] or for a longer portion of such one-hundred-and-eighty day period than ... in any other district.").
6 See Opinion at 4 – 5.
7 Id. at 7 – 8.
8 Id.
9 Id. at 11.
10 Id.
11 Id. at 11 – 12.
12 Id. at 12.
13 Id. at 13.
14 Id. at 14 – 17.
15 Id. at 17 – 20.
16 Id. at 21.
17 Opinion at 22.
18 Id.
19 Id.
20 Id.
21 Id.
22 28 U.S.C. § 1412.
23 Opinion at 25.
24 Id. at 27.
25 Id. at 25, 28.
26 Id. at 28.
27 Id.
28 Id.
29 See, e.g., In re Patriot Coal Corp., 482 B.R. 718, 742 (Bankr. S.D.N.Y. 2012); Opinion at 28.
30 See Opinion at 28 ("Given the number and variety of debtors in this case, it is likely that venue would have been appropriate in multiple districts.").
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