Court Refuses to Enforce Delaware Statutory Provision Stripping LLC Interests Upon Bankruptcy Filing

In In re Envision Healthcare Corp., No. 23-90342, the United States Bankruptcy Court for the Southern District of Texas (Judge Christopher Lopez) addressed a "direct conflict" between the Bankruptcy Code and the Delaware Limited Liability Company Act (the LLC Act).

While section 541 of the Bankruptcy Code creates an estate of all of a debtor's legal and equitable interests as of the bankruptcy commencement date, section 18-304(1)(b) of the LLC Act strips an LLC member of its LLC membership interest upon a bankruptcy filing. The court concluded that section 18-304 of the LLC Act must give way to section 541 of the Bankruptcy Code.

In this Reuters article written by Restructuring & Bankruptcy partners Schuyler Carroll and Bethany Simmons and associate Noah Weingarten, the authors explore the bankruptcy court’s decision and its implications.