Single member LLCs cannot escape the authority of a bankruptcy trustee
Jan. 16, 2011The Dickinson Law Newsroom
Single member LLCs cannot escape the authority of a bankruptcy trustee

In re First Protection, Inc., 2010 WL 5059589 (9Th Cir. BAP [Ariz.] November 22, 2010) is another case involving the attempt by a single member of an LLC to prevent a bankruptcy trustee from exercising management rights over the LLC.  Debtors, David and Laura Fursman, transferred a 50% interest in Redux Development LLC to his mother after filing an individual Chapter 11 petition but before converting that petition a Chapter 7 case.  Their contention was that the trustee could not avoid the transfer under Section 549 of the Bankruptcy Code because the management rights of the LLC were not property of the estate.  In their view, only their membership interest, the right to profits and distributions, were transferred to the estate when they filed bankruptcy.  The trustee was a mere assignee and had no right to participate in management or control it.

The full version of this article is available online at Ward on Iowa Limited Liability Company Law.

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Categories: Business Law

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