{"id":658,"date":"2016-03-02T01:06:51","date_gmt":"2016-03-02T06:06:51","guid":{"rendered":"http:\/\/www.michaelsmithlaw.com\/blog\/?p=658"},"modified":"2023-11-28T13:37:30","modified_gmt":"2023-11-28T18:37:30","slug":"llc-interests-and-a-members-bankruptcy-part-vi","status":"publish","type":"post","link":"https:\/\/www.hpindiana.law\/business-blog\/llc-interests-and-a-members-bankruptcy-part-vi\/","title":{"rendered":"LLC Interests and a Member’s Bankruptcy, Part VI"},"content":{"rendered":"

[The other articles in this seven-part series are here: \u00a0Part I<\/a>,\u00a0Part II<\/a>, Part III,\u00a0<\/a>Part IV<\/a>, Part V<\/a>, Part VII<\/a>.]<\/p>\n

In the last installment of this series, we discussed a few of the bankruptcy cases in which the court, faced with a question of the trustee\u2019s right to exercise the debtor\u2019s noneconomic rights as a member of a limited liability company, considered whether the LLC\u2019s operating agreement was an executory contract under Section 365 of the Bankruptcy Code.\u00a0 In this post we discuss bankruptcy cases that concluded that all the debtor\u2019s membership rights, both economic and noneconomic, were automatically the property of the estate under Section 541 without considering whether the operating agreement was an executory contract.\u00a0 In doing so, those courts tacitly (and erroneously, in the author’s respectful opinion) treat a member\u2019s rights in a limited liability company as if they were equivalent to a shareholder\u2019s rights represented by stock in a corporation.\u00a0 Unlike the rights held by LLC members, the economic and noneconomic rights represented by a share of stock are essentially inseparable and both\u00a0are correctly treated as in the nature of property rights, not contractual rights.<\/p>\n

We\u2019ve already mentioned the case that prompted this series, In re Lee<\/em>, 524 B.R. 798 (Bankr. S.D. Ind. 2014), in which the court held that the trustee acquired all the debtor\u2019s rights, both economic and noneconomic, without considering the potential applicability of Section 365, possibly because neither of the parties to the proceeding that the court argued that the operating agreement was an executory contract. \u00a0Although the Lee court cited to a number of cases to support its holding that the trustee acquired both the economic and noneconomic membership rights of the debtor, all but one them[1]<\/a> reached that conclusion without addressing whether it was necessary to consider the possible applicability of Section 365. \u00a0While In re Lee<\/em> is consistent with those cases, none of them actually holds that the trustee acquires the debtor\u2019s noneconomic rights with no need to analyze\u00a0the operating agreement under Section 365<\/em>.<\/p>\n

Continue reading \u203a<\/a><\/div>\n","protected":false},"excerpt":{"rendered":"

[The other articles in this seven-part series are here: \u00a0Part I,\u00a0Part II, Part III,\u00a0Part IV, Part V, Part VII.] In the last installment of this series, we discussed a few of the bankruptcy cases in which the court, faced with a question of the trustee\u2019s right to exercise the debtor\u2019s noneconomic rights as a member […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[12],"tags":[],"class_list":["post-658","post","type-post","status-publish","format-standard","hentry","category-limited-liability-companies"],"yoast_head":"\nLLC Interests and a Member's Bankruptcy, Part VI — Indiana Business Law Blog — March 2, 2016<\/title>\n<meta name=\"description\" content=\"In the last installment of this series, we discussed a few of the bankruptcy cases in which the court, faced with a question of the trustee\u2019s right to — March 2, 2016\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.hpindiana.law\/business-blog\/llc-interests-and-a-members-bankruptcy-part-vi\/\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Michael R. 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