[CLBS] Breach of LLC Operating agreement - before BK or by filing BK - any difference?

Thu Mar 22 11:57:16 MDT 2018

The member is not getting anything in return for the withdrawal. The other
member just wants the units so he can add another member in debtor’s place.
If debtor were to receive anything, I believe the trustee could reach it.

Best regards,

HOLLY ROARK

Attorney at Law 

Certified Bankruptcy Specialist -

By the State Bar of California Board of Legal Specialization

ROARK LAW OFFICES

950 Bannock Street | 11th Floor | Boise, Idaho 83702

Phone:  (208) 536-3638 (Texting is great! Regular business hours only,
please.)

Fax: (310) 553-2601

E-mail:   <mailto:holly at roarklawboise.com> holly at roarklawboise.com Website:
<http://www.roarklawboise.com/> www.roarklawboise.com

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by phone only unless otherwise noted.)

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From: Matthew Christensen <mtc at angstman.com> 
Sent: Thursday, March 22, 2018 8:56 AM
To: holly at roarklawboise.com; clbs at admws.idaho.gov
Subject: RE: [CLBS] Breach of LLC Operating agreement - before BK or by
filing BK - any difference?

Couple questions:

1.  What's the reason for the other member demanding the withdrawal prior to
the BK filing?

2.  Is the withdrawing member receiving anything from the other member in
return for his/her withdrawal?  If so, is that something the Trustee could
otherwise reach?  If not, why not?  Could the Trustee pursue an avoidance
claim (assuming the LLC has some value)?

Generally, I think there is a difference between default because of
withdrawal, and default because of a BK filing.  Generally, a contractual
provision that works as a waiver of the right to file bankruptcy (such as an
LLC OA term that states a member defaults by filing BK) is unenforceable.
Here's
<http://www.jonesday.com/Blocking-Member-Provision-in-LLC-Agreement-Designed
-to-Prevent-Bankruptcy-Filing-Unenforceable-06-01-2016/>  a recent article
discussing that topic, with several good case citations.  However, I think a
default caused by a pre-petition withdrawal from the company would not be
something prevented by the BK code or caselaw.  Thus, one is an enforceable
default, and the other is an unenforceable default.  

MTC

Matthew T. Christensen 

(208) 384-8588 

mtc at angstman.com <mailto:mtc at angstman.com>  

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-----Original Message-----
From: CLBS [mailto:clbs-bounces at admws.idaho.gov] On Behalf Of Holly Roark
Sent: Wednesday, March 21, 2018 10:31 AM
To: clbs at admws.idaho.gov <mailto:clbs at admws.idaho.gov> 
Subject: [CLBS] Breach of LLC Operating agreement - before BK or by filing
BK - any difference?

According to an LLC operating agreement, a member resigning is a breach, but
so is filing BK. Is there any difference in liability if one breaches by
resigning prepetition as opposed to breaching by filing BK? I understand
there may be nondischargeable claims of breach of fiduciary duty, however in
this particular case that is unlikely. I am wondering if there are any
non-obvious traps regarding timing here since the other member would like
client to go ahead and sign a resignation prior to filing the BK. 

A breach does trigger a requirement to return all "units" of interest for
mandatory redemption (valued at zero). I don't think a chapter 7 trustee
would find any value in the debtor member's interest. 

Best regards,

HOLLY ROARK

Attorney at Law 

Certified Bankruptcy Specialist -

By the State Bar of California Board of Legal Specialization

ROARK LAW OFFICES

950 Bannock Street | 11th Floor | Boise, Idaho 83702

Phone:  (208) 536-3638 (Texting is great! Regular business hours only,

please.)

Fax: (310) 553-2601

E-mail:   < <mailto:holly at roarklawboise.com> mailto:holly at roarklawboise.com>
<mailto:holly at roarklawboise.com> holly at roarklawboise.com Website:

< <http://www.roarklawboise.com/> http://www.roarklawboise.com/>
<http://www.roarklawboise.com> www.roarklawboise.com

You can easily see my real-time availability and schedule time with me at <
<https://calendly.com/hollyr> https://calendly.com/hollyr>
<https://calendly.com/hollyr> https://calendly.com/hollyr (Appointments are
by phone only unless otherwise noted.)

*This communication does not create an attorney-client relationship.

Unless you have signed a retainer agreement with Roark Law Offices, this 

communication may not be private or privileged.

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