Authority to File Chapter 11: A Matter of Contract or Public Policy?
September 2, 2021 – The Bankruptcy StrategistHerrick partner Steven Smith published an article in The Bankruptcy Strategist concerning Chapter 11 cases for limited liability companies (LLCs). They referenced the April 2021 bankruptcy petition filed by 3P Hightstown, LLC, in which "the judge concluded that the governing LLC agreement — which restricted the debtor’s ability to commence a bankruptcy case — was not void as contrary to public policy."
Smith explained, "Judge Kaplan’s decision serves as an important consideration for anyone planning to file a bankruptcy petition for an LLC, regardless of the state where the LLC is organized, but it is especially instructive for parties wishing to file bankruptcy petitions for LLCs organized under Delaware law. Practitioners should take great care to review both the governing LLC agreement and applicable state law to determine whether any specific steps need to be taken before filing. And practitioners drafting LLC agreements and amendments should review state law and both federal and state case law when drafting language relating to bankruptcy filing requirements."