Source: https://www.furrcohen.com/articles-news/a-debtors-membership-interest-in-a-multi-member-llc-what-does-a-trustee-receive/
Timestamp: 2019-04-24 12:12:53+00:00

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A Debtor’s Membership Interest In A Multi-Member LLC, What Does A Trustee Receive? | Bankruptcy Lawyer Boca Raton | Family Law | Furr &Cohen, P.A.
A debtor’s equity interest in a business becomes property of the bankruptcy estate upon the filing of the debtor’s petition, pursuant to Section 541(a)(1) of the Bankruptcy Code.1Stock certificates or other security instruments, which are personal property of the debtor, generally represent the debtor’s equity interest in a business. An interest in a Limited Liability Company (“LLC”) is no different; as such, a debtor’s interest becomes property of the bankruptcy estate. The question for the Trustee is, to what extent?
In 2014 Florida enacted the Florida Revised Limited Liability Company Act (the “Revised Act“),2 which made several significant changes to the structuring and operation of LLCs and the duties and obligations of the LLC’s members. Pertinent to this discussion, however, are the functions of becoming a member and dissociation. LLCs are creatures of contract, under an operating agreement,3 and governed by statute.4 One big advantage of the LLC form is the restrictions on the voluntary or involuntary transfer of interests by members.5 These restrictions are at the heart of the discussion when determining to what extent a debtor’s membership interest becomes property of the estate.
What Does A Trustee Receive?
There is sparse case law on the issue of a trustee’s interest in a multi-member LLC and the case law is non-existent under the Revised Act. Several questions remain in determining what interest a trustee receives. Among them are: (i) How does a trustee receive a debtor’s interest in property (as assignee or does a trustee “become” the debtor)? (ii) Whether the limiting provisions included in the Revised Act are preempted by the Bankruptcy Code? and (iii) whether an operating agreement constitutes an executory contract?
2 Fla. Stat. §§ 605.0101 et seq.
3 An operating agreement need not be in the form of a writing, the definition of operating agreement under the Revised Act is extremely broad. See Fla. Stat. § 605.0102(45).
4 See, Revised Act, generally. See also, Fla. Stat. §605.0105.
5 The focus in this article will be on the statutory language because operating agreements can drafted to include any language agreed upon by the parties, subject to Fla. Stat. § 605.0105.
6 Fla. Stat. § 605.0401(3)(c).
7 Fla. Stat. § 605.0502.
9 See, Fla. Stat. §§ 605.0601 and 605.0602.
10 Fla. Stat. § 605.0603(1)(c).
13 Subsections (4) – (9) of Fla. Stat. § 608.433(2011).
14 The Executive Committee of the Florida Bar Florida Revised LLC Act Drafting Committee, White Paper for the Florida Revised Limited Liability Company Act, p. 2.
15 See, U.S. Const. Art. VI, cl. 2 (“This Constitution, and the Laws of the United States which shall be made in Pursuance thereof … shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any State to the Contrary notwithstanding.”).
17 11 U.S.C. § 365(e)(1)(B).

References: § 605
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 § 365