I. Introduction
In a June 3, 2016 decision1 , the United States Bankruptcy Court for the District of Delaware (“the Bankruptcy Court”) invalidated, on federal public policy grounds, a provision in the debtorLLC’s operating agreement that it viewed as hindering the LLC’s right to file for bankruptcy. Such provision provided that the consent of all members of the LLC, including a creditor holding a so-called “golden share” received pursuant to a forbearance agreement, was required for the debtor to commence a voluntary bankruptcy case.
In In re Intervention Energy Holdings, LLC, the question before the United States Bankruptcy Court for the District of Delaware was whether an investor who “bought and paid for [one] Common Unit (including all rights related thereto),”
I sense a sea change in the recent Delaware decision in Intervention Energy Holdings, LLC, 2016 WL 3185576 (6/3/16), refusing to enforce a bankruptcy proofing provision of a Delaware LLC’s operating agreement. Until recently, the trend had been to accept the fundamental principles of bankruptcy remoteness, although courts sometimes found ways to avoid honoring anti-bankruptcy devices in specific cases.
Since April, two bankruptcy courts have refused to enforce limited liability company ("LLC") agreement provisions requiring the respective LLCs to obtain the unanimous consent of their members in order to seek bankruptcy relief.1 On June 3, 2016, the Bankruptcy Court for the District of Delaware (the "Delaware Bankruptcy Court") relied on federal public policy to invalidate an LLC agreement provision requiring unanimous member consent to file bankruptcy where the member at issue owed no fiduciary duties to the LLC and the member's primary relationship to the
Creditors seeking to file an involuntary petition against a debtor may want to consider doing their due diligence before using it as a tool in their ongoing disputes with a debtor.
The question of what constitutes “equal treatment” is a question as old as law itself. Though a favored topic by the Aristotles and the Rousseaus of the world, the question is not entirely esoteric. The concept plays a central role in the law of bankruptcy – courts occasionally describe the principle of equitable distribution between similarly situated creditors as one of the “pillars” of the Bankruptcy Code.
In 2015, the Court of Chancery ruled upon the then novel issue under Delaware law as to what priority level advancement claims should be afforded in a receivership action. Then Vice Chancellor Parsons held that claims for advancement are not entitled to administrative priority, and instead are considered to be pre-petition, non-priority unsecured claims. For a link to a summary of the Court of Chancery decision, click here.
This month marks the five year anniversary of the Los Angeles Dodgers’ chapter 11 filings. As a changeup from the world of oil and gas, we’ve prepared a light lookback to the ball club’s bankruptcy.
A Delaware bankruptcy court has joined what appears to be a recent trend toward invalidating limited liability company operating agreement provisions that effectively afford lenders veto power over the LLC’s authority to file for bankruptcy protection; the court found one such provision void as contrary to federal public policy. In re Intervention Energy Holdings, LLC, et al., Case No. 16-11247 (KJC) (D.I. 69), 2016 W.L. ___________ (Bankr. D. Del. June 3, 2016).