It sounds like the beginning of a bad joke. An individual walks into a bar and says “Where’s my LLC?” But that was the question a Bankruptcy Appellate Panel recently had to answer. The court had to determine whether Nevada was the proper venue in an involuntary bankruptcy case. The debtor’s only connection with Nevada was that his principal assets consisted of interests in a Nevada LLC and a Nevada limited partnership.
The trustee in the bankruptcy of an LLC member asked the Bankruptcy Court for a declaration that the LLC was dissolved pursuant to its operating agreement. The operating agreement mandated dissolution upon the bankruptcy of a member, but the court denied the trustee’s motion, relying on provisions in the Bankruptcy Act that trump contractual limitations. In re Warner, 480 B.R. 641 (Bankr. N.D. W.Va. Sept. 27, 2012).
If a loan or extension of credit requires collateral, banks prefer collateral that is readily marketable rather than taking a security interest in a closely-held business. Occasionally, the only collateral that is available or that the borrower can offer is corporate stock that is not traded on a public market, an interest in a limited liability company ("LLC") or a partnership interest. It is common for closely-held business entities to prohibit an assignment of an owner's interest or require as a condition to an assignment the consent of the other owners of the entity.
The U.S. Bankruptcy Court for the Eastern District of Tennessee ruled in August that an LLC’s creditor could not pierce the LLC’s veil to assert its claim against the LLC’s sole member. In a twist, the LLC’s member, not the LLC, was the debtor in bankruptcy. In re Steffner, No. 11-51315, 2012 WL 3563978 (Bankr. E.D. Tenn., Aug. 17, 2012).
Stephens Media, LLC is the publisher of the Las Vegas Review-Journal. In 2009, Stephens Media filed a lawsuit in the U.S. District Court against Citihealth, L.L.C. alleging a variety of trademark related claims. Citihealth failed to respond to the suit and Stephens Media filed a motion for a default judgment. One of the co-owners of Citihealth then notified the court that Citihealth had dissolved and that he and the other co-owner filed for personal bankruptcy. In ruling on the motion, U.S.
On July 9, 2012, Judge Mary F. Walrath of the Bankruptcy Court for the District of Delaware disallowed a claim for rejection damages related to a real estate development agreement, because the claim had been released upon the termination of an LLC Agreement, and the underlying ground lease never came into existence. In re Magna Entm’t Corp., 2012 Bankr. LEXIS 3089 (Bankr. D. Del. July 9, 2012).
Background
The U.S. Supreme Court in RadLAX Gateway Hotel, LLC v. Amalgamated Bank, ___ S. Ct. ___, 2012 WL 1912197 (May 29, 2012), held that a debtor may not confirm a chapter 11 "cramdown" plan that provides for the sale of collateral free and clear of existing liens, but does not permit a secured creditor to credit-bid at the sale. The unanimous ruling written by Justice Scalia (with Justice Kennedy recused) resolved a split among the Third, Fifth, and Seventh Circuits.
On May 29, 2012, the U.S. Supreme Court decided RadLAX Gateway Hotel LLC v. Amalgamated Bank, No. 11-166, holding that a Chapter 11 debtor may not obtain confirmation of a "cramdown" plan under 11 U.S.C. § 1129(b)(2)(a) that provides for the sale of collateral free and clear of a secured creditor's lien but that does not permit the creditor to credit-bid at the asset sale (that is, offset the purchase price by the amount of the debt owed).
Introduction