Fourth, a bankrupt member's rights in a partnership or analogous firm and whether these rights are property of the estate under section 541 and subject to control and disposition under section 363 should be governed by state law. Several general principles inform these recommendations. First, partnerships and LLCs are important, extremely flexible investment vehicles and reflect detailed and costly planning. Ribstein Letter , at 2. Mandatory bankruptcy rules, added to the federal, state and tax laws that appertain, increase the complexity of what is already a daunting drafting task.
Tax law provides a particular source of uncertainty.
Bankruptcy law should free states and firms to deal with regulatory changes. If bankruptcy law provides parties a potential recovery or right that does not exist under the partnership agreement or state law, opportunities exist for forum-shopping. For instance, a partner might initiate a personal bankruptcy in order to utilize the no- ipso facto rule advanced by this Commission's proposal. As another example, an undersecured creditor might be able to use a bankruptcy proceeding to avoid a low buyout provision under the debtor's partnership agreement, if federal bankruptcy law creates a more favorable buyout formula. Fifth, the experience of lawyers in transactional practices suggests that creditors who deal with partners as borrowers generally realize the risks they are taking in relying on the partnership interest for repayment and can adjust to those risks legally and economically.