In a June 3, 2016 decision, the United States Bankruptcy Court for the District of Delaware (“the Bankruptcy Court”) invalidated, on federal public policy grounds, a provision in the debtor-LLC’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. This case demonstrates that courts are likely to view with hostility prohibitions in organic documents that they view as tantamount to an outright prohibition of a debtor to file for bankruptcy, particularly where they have been insisted on by a creditor of the entity.
View full memo, Delaware Bankruptcy Court Invalidates on Public Policy Grounds a “Golden Share” Provision in LLC Agreement Designed to Limit LLC’s Ability to File for Bankruptcy
