Category: Bankruptcy

LLC BANKRUPTCIES

By , February 20, 2018 4:23 pm

Below are the title and first paragraph of a new law journal article about operating agreement restrictions on LLC bankruptcy filings.

36-DEC Am. Bankr. Inst. J. 26
American Bankruptcy Institute Journal
December, 2017
Feature
Cecily A. Dumas
Pillsbury Winthrop Shaw Pittman LLP
San Francisco
David S. Forsh
Pillsbury Winthrop Shaw Pittman LLP
New York
Copyright © 2017 by American Bankruptcy Institute; Cecily A. Dumas, David S. Forsh

CONSIDERATIONS IN EVALUATING LLC OPERATING AGREEMENT CONSTRAINTS ON VOLUNTARY FILINGS

Corporate entities may voluntarily commence bankruptcy only with valid authorization as determined by applicable state law. Bankruptcy-remote entities (special-purpose entities (SPEs) or special-purpose vehicles) are specifically structured to isolate credit risk to the SPE assets and minimize bankruptcy risk. The limited liability company (LLC) is a form of organization that is often used to deter bankruptcy filings through provisions in the operating agreement such as the requirement for unanimous votes. While recent decisions have invalidated certain such constraints on federal public policy grounds when implemented at a creditor’s request, future decisions could view the various policy considerations differently and reach other conclusions, particularly with other transaction structures.

ARTICLE ON HOW TO DRAFT LLC OPERATING AGREEMENTS FOR MEMBER BANKRUPTCY

By , December 15, 2017 3:07 pm

Below are the title of an excellent article on how to draft LLC operating agreements to address a key bankruptcy issue and its first paragraph:

72 Bus. Law. 981
Business Lawyer
Fall, 2017
Article
David L. Bury, Jr.a1 Thomas T. McClendon
Copyright © 2017 by the American Bar Association; David L. Bury, Jr., Thomas T. McClendon
PLANNING FOR THE UNEXPECTED: DRAFTING OPERATING AGREEMENTS TO PROTECT LLC MEMBERS FROM ANOTHER MEMBER’S BANKRUPTCY

Typically, the possibility that a member might end up in bankruptcy is an afterthought when parties form an LLC. However, a member’s bankruptcy can wreak surprising results for the LLC, including a Chapter 7 trustee taking over management of the LLC, selling the bankrupt member’s LLC interest to a third party, and seeking judicial dissolution of the LLC. Unwittingly, the LLC and its members can find themselves embroiled in disruptive and costly litigation. This article seeks to equip attorneys, especially those drafting operating agreements, to advise on and guard against these dangers. First, the article discusses two critical bankruptcy concepts in the LLC context: “property of the estate” and “executory contracts.” Second, it surveys the different ways bankruptcy courts treat LLC interests and operating agreements. Finally, this article provides several practical suggestions for improving operating agreements on the front end so that LLCs and their members are better prepared for and, hopefully, more protected from member bankruptcies.

LLC BANKRUPTCY

By , September 15, 2016 1:49 pm

Over time, one or more of our LLC clients may go bankrupt.  If they do, can a bank provide in the LLC’s operating agreement that the LLC may not file for bankruptcy except with the bank’s consent?  According to the very recent decision of the Delaware bankruptcy court, discussedin the post under the link below, the answer is no.

Here’s the link:  http://www.lexology.com/library/detail.aspx?g=2b11d4bd-476d-4136-8dc6-9ca097c4945a&l=7SEHPUL

NEW ARTICLE ON SERIES LLCS AND BANKRUPTCY

By , April 7, 2016 6:52 pm

Lawyers who form series LLCs for their clients under the laws of their own or other states may find interest in the article below.

35-MAR Am. Bankr. Inst. J. 24
American Bankruptcy Institute Journal
March, 2016
SERIES LLCS: CAN A SERIES FILE FOR BANKRUPTCY, AND WHAT IF IT DOES?
Steven J. Boyajian
Robinson & Cole LLP
Providence, R.I.
Copyright © 2016 by American Bankruptcy Institute; Steven J. Boyajian

ARTICLE ON WHETHER BANKRUPTCY ESTATES CAN LIQUIDATE PARTIAL INTERESTS LLCS

By , November 10, 2015 8:29 pm

The article cited below will be of interest to lawyers working with bankruptcy estates holding fractional interests in LLCs.

34-OCT Am. Bankr. Inst. J. 32
American Bankruptcy Institute Journal
October, 2015
CAN AN ESTATE EFFECTIVELY LIQUIDATE A FRACTIONAL INTEREST IN AN LLC?
Richard J. Mason
McGuireWoods LLP
Chicago
Patricia K. Smoots
McGuireWoods LLP
Chicago
Copyright © 2015 by American Bankruptcy Institute; Richard J. Mason, Patricia K. Smoots

BANKRUPTCY

By , August 24, 2015 4:33 pm

If you’re forming LLCs for your clients, you have to know what is likely to happen to LLCs and their members when the LLCs or one or more members go bankrupt.  For one thing, the answer is likely to involve LLC statutory pick-your-partner provisions and charging order provisions, which are key provisions in any LLC act—and which you and your clients need to understand.

The new blog post under the link below talks about a key issue that often arises when an LLC goes bankrupt.  The blogger is Tom Rutledge, a national leader in the field of LLC law and practice.

http://kentuckybusinessentitylaw.blogspot.com/2015/08/court-holds-that-bankruptcy-trustee.html