Small Business and Partnerships:
Partnerships
| ID | Name | Group | Other | Code
Sec |
Cross
Ref | Problem
Referenced | Proposed
Solutions |
NBRC-
0223 | Frank R. Kennedy | Professor, Michigan
Law School; former Executive Director, Commission on the Bankruptcy Laws
of the United States (1973) | Cover letter
discussing various areas of concern |
|
| Author provides a list of 30 "Topics for Consideration by
Commission on Bankruptcy Laws." The recommended topic relating to
partnerships is:
Revision of provisions governing partnerships and limited liability
companies. | None. |
NBRC-
0301 | National Bankruptcy Conference | National Bankruptcy Conference (NBC), Bernard Shapiro -
Chair |
|
|
|
National Bankruptcy Conference believes that the
following issue merits study by the NBRC: whether the law of
partnerships should be "totally
reconsidered." | NBC concludes that
partnership law should be "reconsidered." (No additional
details are provided. The NBC Report, however, which discusses this
position more thoroughly, has been "refined" and will be
available to the NBRC.) |
NBRC-
0303 | Commercial Law League of America | Commercial Law League of America (CLLA) |
|
|
| The Commerical Law
League of America believes that the following partnership issues should
be considered by the NBRC:
1) Is a partnership agreement an executory contract (CLLA believes
this issues should receive high priority; no additional details are
provided)
2) Does the trustee exercise the rights of partners who are debtors or
are those rights reserved to the debtor ("high priority"
issue).
3) Are clauses automatically converting a general partner's interest
to a limited partnership enforceable in bankruptcy Are clauses
compelling the sale of the bankrupt partner's interest enforceable
("high priority" issue)
4) Under what circumstances may the bankrupt court stay creditor
actions against non-debtor partners for their liability for partnership
debts Are there differences during the pendency of the case and after a
plan is confirmed and the case is closed ("high priority"
issue)
5) Should the bankruptcy court have the power to prohibit general
partners of the bankruptcy partnership from transferring non-partnership
assets during the pendency of the case ("high priority" issue)
6) Should the bankruptcy court have the power to compel non-debtor
general partners to disclose information about their financial condition
Should this information be sealed ("high priority" issue)
7) What rights should the chapter 7 trustee have against general
partners What rights should the chapter 11 estate have against the
partners ("high priority" issue)
8) Should non-partnership creditors have priority over partnership
creditors as to non-partnership assets of general partners who are in
bankruptcy, or who are in bankruptcy ("high priority" issue)
9) Should § 1111 be calrified to provide that conversion of
non-recourse debt to recourse debt does not create general partner
liability on such debt ("high priority" issue)
10) Should the Code authorize creation of committees of partners
("high priority" issue)
11) What is the status of new partners, fomer partners, special
partners and partners by estoppel | The issue
of the status of new partners, fomer partners, special partners and
partners by estoppel should be a "non-priority" because it is
much too broad and probably could never be addressed effectively by
statutory enactment. |
NBRC-
0320 | Robert M. Zinman, on behalf of the Bankruptcy
Institute | American Bankruptcy Institute
("ABI") | Numerous position papers,
memoranda and research material | 723 | Rule 1007(g) | The author observes that: (1) most courts have found that
partnership ageements are executory contracts; (2) that courts are split
as to whether the trustee exercises the rights of the partners who are
debtors, as opposed to those rights being reserved to the debtor; (3)
most courts have found that clauses automatically converting a general
partner's interest to a limited partnership enforceable in bankruptcy;
(4) the majority of courts have found that the automatic stay does not
protect non-debtor partners when the partnership files for bankruptcy
relief; and (5) The extent of a partner's liability for partnership
debts at state law determines whether, and to what extent, the partner
may be compelled to contribute to a deficiency under current §
723; | Code should be amended as follows: (1)
Clarify the provisions regarding the court's power to prohibit general
partners of the bankruptcy partnership from transferring non-partnership
assets during the pendancy of a case. Such amendments should allow both
partner and partner creditor requests for relief; (2) Provide the
bankruptcy court with the power to compel non-debtor general partners to
disclose information about their financial condition, as the information
is relevant to many issues in the liquidation or reorganization of the
debtor partnership; (3) Provide that the rights of the trustee contained
currently in § 723 of the Code should be equally available to
chapter 7 and chapter 11 trustees; (4) Give nonpartnership creditors and
partnership creditors equal priority claims on the assets of general
partners, and avoid return to the "jingle rule"; and (5)
Clarify that § 1111 to provide that conversion of non-recourse debt
to recourse debt does not create general partner liability on such debt;
(6) Permit creation, where necessary, of a committee of
partners; |
NBRC-
0443 | Samuel J. Gerdano | Executive Director,
American Bankruptcy Institute | Partner and
Partnership Bankruptcy: A Survey and Analysis of Case Law and Proposed
Amendments to the Bankruptcy Code, by Robert J. Keach,
Esq. |
|
| Author of letter is forwarding
copy of "a detailed analysis and proposed amendments to the
Bankruptcy Code relating to partnerships" prepared by Robert J.
Keach, Esq., Chair of the Subcommittee on Partnerships of the ABI
Committee on Business Reorganization. |
|
NBRC-
0517 | Morris W. Macey | Attorney, Former
Chairman, Ad Hoc Committee of the ABA | Proposed amendment to §569 of the Code; copy of article by
author and Professor Kennedy from The Business Lawyer, May,
1995. | 569 |
| Author is forwarding copy of
Amendment to §569 of the Bankruptcy Code proposed by an Ad Hoc
Committee of the ABA. | Contained in proposed
amendment |
NBRC-
0666 | Richard Levin | Attorney, Skadden,
Arps, Slate, Meagher & Flom |
|
|
|
Author addresses the April 3 draft memorandum on the
partner as debtor concepts, addressing specific numbered paragraphs with
his analysis and suggestions. |
|
NBRC-
0676 | Stanley Walker | Citizen |
|
|
| Author writes
concerning his testimony before the Commission and forwarding a copy of
his letter to Professor Jack Williams. Author was involved in a
partnership which built a shopping center. He filed to force the
partnership into Chapter 11 bankruptcy, under which a trustee was
appointed who ran the business for four years and opposed all efforts to
convert to a Chapter 7. During the four year period of the trustee's
running of the business, the business made money because of the
trustee's ability to avoid certain payments, among these the taxes. At
the end of that time, trustee claimed that the taxes were owed by the
partners, which the IRS agreed with, but author felt that the taxes
should be paid by the partnership's estate. | Congress needs to address the inconsistencies between the
Bankruptcy Code, Internal Revenue Code, and partnership law. |
NBRC-
0709 | Laurence J. Kaiser | Attorney, Fisher,
Fisher & Berger | Comments of Laurence J.
Kaiser on (1) The 4/15/97 proposal; (2) Sally Neely's 5/5/97 comments;
and, (3) The 5/5/97 Revised Staff Proposal. | 365 |
| Author agrees that the partnership relationship should not be
treated as an executory contract. | Partnerships and LLC's should each have a unique statutory
definition and treatment. It should be clear in the statute that such
agreements are also not to be treated as financial accommodations under
current §365(e)(2)(b). |
NBRC-
0709 | Laurence J. Kaiser | Attorney, Fisher,
Fisher & Berger | Comments of Laurence J.
Kaiser on (1) The 4/15/97 proposal; (2) Sally Neely's 5/5/97 comments;
and, (3) The 5/5/97 Revised Staff Proposal. |
|
| Author agrees that all ipso facto clauses should be void. The
author does have concerns, however, that parties may manipulate the
non-ipso facto provisions. | No specific
proposals. |
NBRC-
0709 | Laurence J. Kaiser | Attorney, Fisher,
Fisher & Berger | Comments of Laurence J.
Kaiser on (1) The 4/15/97 proposal; (2) Sally Neely's 5/5/97 comments;
and, (3) The 5/5/97 Revised Staff Proposal. | 541 |
| Author agrees that the economic value of the partnership should
be part of the estate under §541; however, he notes that this may
require some greater definition. | No specific
proposal. |
NBRC-
0709 | Laurence J. Kaiser | Attorney, Fisher,
Fisher & Berger | Comments of Laurence J.
Kaiser on (1) The 4/15/97 proposal; (2) Sally Neely's 5/5/97 comments;
and, (3) The 5/5/97 Revised Staff Proposal. |
|
| Author agrees with the basic concept that the agreement among the
partners should determine the transferability of interests; however, he
raises some concerns with the details. | No
specific proposal. |
NBRC-
0709 | Laurence J. Kaiser | Attorney, Fisher,
Fisher & Berger | Comments of Laurence J.
Kaiser on (1) The 4/15/97 proposal; (2) Sally Neely's 5/5/97 comments;
and, (3) The 5/5/97 Revised Staff Proposal. |
|
| Author agrees that buy-out rights and values which have general
application should generally be enforceable, but questions the exclusion
from the estate and from the valuation methodology of "Interests
which arise, accrue or are exercisable after the order for relief."
Author raises other related questions. | No
specific proposal. |
NBRC-
0709 | Laurence J. Kaiser | Attorney, Fisher,
Fisher & Berger | Comments of Laurence J.
Kaiser on (1) The 4/15/97 proposal; (2) Sally Neely's 5/5/97 comments;
and, (3) The 5/5/97 Revised Staff Proposal. |
|
| Author agrees that the DIP should be able to exercise management
rights; however, this raises a number of questions concerning liability
for losses. Author agrees that the DIP or trustee should be able to
decline the responsibility and liability, but does this create a vacuum
in management which itself causes liability | No specific proposal. |
NBRC-
0709 | Laurence J. Kaiser | Attorney, Fisher,
Fisher & Berger | Comments of Laurence J.
Kaiser on (1) The 4/15/97 proposal; (2) Sally Neely's 5/5/97 comments;
and, (3) The 5/5/97 Revised Staff Proposal. |
|
| Author agrees that there may be partnerships and situatioins
where the identity and role of the general partner is so insignificant
that the partners and partnership agreement should not be able to
preclude and assignment of the interests to a new partner; but author is
concerned whether the drafting of such a test will not result in people
drafting around the test in their agreements. He has a similar concern
with the use of separate agreements as a mechanism to evade the policy
being implemented. | No specific
proposal. |
NBRC-
0709 | Laurence J. Kaiser | Attorney, Fisher,
Fisher & Berger | Comments of Laurence J.
Kaiser on (1) The 4/15/97 proposal; (2) Sally Neely's 5/5/97 comments;
and, (3) The 5/5/97 Revised Staff Proposal. | 105 | 362 | Author opposes the use of §105 in the context of partnership
and partners cases. There may be circumstances where it is appropriate
for the intervention of the court to forestall or deter abuse. Author
also agrees with the reluctance to change §362 in the context of
partnerships or partners alone. | No specific
proposal. |
NBRC-
0709 | Laurence J. Kaiser | Attorney, Fisher,
Fisher & Berger |
|
Comments of Laurence J. Kaiser on (1) The 4/15/97
proposal; (2) Sally Neely's 5/5/97 comments; and, (3) The 5/5/97 Revised
Staff Proposal. |
| Author agrees with Sally Neely's comments concerning the status
of prepetition partnership debts and with respect to curable breaches of
the partnership agreement. | The estate should
have the obligation to provide adequate assurance, not just the
opportunity to do so. |
NBRC-
0709 | Laurence J. Kaiser | Attorney, Fisher,
Fisher & Berger | Comments of Laurence J.
Kaiser on (1) The 4/15/97 proposal; (2) Sally Neely's 5/5/97 comments;
and, (3) The 5/5/97 Revised Staff Proposal. |
|
|
Author agrees that the resolution of disputes between
the trustee and the individual debtor is a problem. The concept of
agency makes sense, but author is concerned by the increased potential
for conflicts of interest arising from the fragmentation or diffusion of
authority and responsibility engendered by the proposal to separate
ownership from management, future profit and loss from existing economic
rights, and management of future economic rights from management of past
economic rights. | No specific
proposal. |
NBRC-
0786 | Richard B. Levin | Attorney, Skadden,
Arps, Slate, Meagher & Flom LLP | 365,
541(c)(1), 363(l) |
|
|
How to treat the relationships among the owners of an
LLC or partnership when one of their number files a bankruptcy
petition. | For partnership or LLC purposes,
the trustee (or the estate) of a bankrupt partner would be entitled to
"the economic value of the debtor's ownership interest int he
partnership and nothing more." "That is, the trustee should
not be able, by succeeding to the ownership interest of the partner/LLC
member under section 541 to start running the place and to make
management decisions." Author also discusses the ramifications of
his general concept for the NBRC proposals on the effect of a General
Partner or LLC member's bankruptcy filing, |
NBRC-
0797 | Marcia L. Goldstein | Chair, Committee
on Bankruptcy & Corporate Reorganization, The Association of the Bar
of the City of New York |
|
|
|
The May 5, 1997 version of Proposal #3 of the Small
Business Working Group contemplates that, with respect to management
rights only, the automatic stay would not apply to actions of the
partnership against the partner in bankruptcy in implementing rights
under the partnership agreement. The Committee is troubled by this
proposed exception to the automatic stay." "First, it is
often difficult to separate management rights from economic
rights." "More importantly, we are concerned that the loss of
management rights and the economic consequences of that loss could have
a dramatic effect on the partner's creditors and the reorganization
process..." "The proposed exemptions to the automatic stay
also creates incentives for partnership agreements to be drafted with
very broad rights to remove partners." "The Committee is also
concerned that under the Proposal, partners and the partnership would be
permitted to exercise rights under the partnership agreement without
first obtaining relief from the automatic stay notwithstanding the fact
that the exercise of similar rights under another type of agreement
would be subject to the automatic stay." "Finally, because
the proposed exception to the automatic stay deals only with management
rights, it may appear to protect a partner in circumstances where,
arguably, there may be a stronger justification for an exception to the
automatic stay." | "If an exception
to the automatic stay will permit actions to divest a partner of his or
her management rights, without any consideration of the appropriateness
of these actions or the impact that these actions may have on the
partner's creditors and the reorganization process, the Committee
believes that the definition of the term "transfer" in Section
101 of the Bankruptcy Code should be modified to ensure that an
amendment to a partnership agreement may be a voidable
"transfer" if the requirements for a fraudulent transfer under
Section 548 are satisfied." In light of its concerns, the
Committee asks that, in lieu of the proposed exception to the automatic
stay, you consider a modification to Section 362 to augment the meaning
of "cause" for purposes of obtaining relief from the automatic
stay to permit partners or the partnership to exercise their respective
rights under the partnership agreement. Proposed language is
given. |
NBRC-
0797 | Marcia L. Goldstein | Chair, Committee
on Bankruptcy & Corporate Reorganization, The Association of the Bar
of the City of New York |
|
|
|
"The Proposal would permit a sale of the
'Partner's Interests' under Section 363, but only 'for cause shown,' and
'unless the Partner's Interests are or are more likely than not to be
retained as an asset pursuant to a plan confirmed or more likely than
not to be confirmed under chapters 11, 12, or 13 of the Bankrkuptcy
Code.' The Committee supports your efforts to ensure that the debtor
partner will be able to realize the value of its interests in the
partnership. However, in our view, the Proposal creates multiple
opportunities for litigation over whether "cause" is shown,
whether the Partner's Interests 'are or are more likely than not to be
retained' and whether an actual or, worse, a hypothetical plan is 'more
likely than not to be confirmed.'" "The Committee is
particularly concerned that the Proposal would allow a buyer of the
Partner's Interests to be admitted to the partnership as a partner,
notwithstanding objections that may be raised by other partners
..." The Committee believes that the protection offered by the
Proposal is insufficient. | "We feel that
the standards that are currently set forth in Section 363, as these
standards have been developed by the courts in considering asset sales
generally, are sufficient for a sale of the Partner's Interests."
"The Committee feels that if any partner objects to the admission
of a buyer to the partnership, the buyer should not be admitted to the
partnership except as permitted by the partnership agreement or other
applicable law." The Committee also proposes a revision of Part
V.D.2. of the Proposal, for which the revised language is
given. |
NBRC-
0797 | Marcia L. Goldstein | Chair, Committee
on Bankruptcy & Corporate Reorganization, The Association of the Bar
of the City of New York |
|
|
|
"The Committee believes that the non-debtor
partners, the partnership and creditors of the partnership should be
entitled to protection of their respective interests pending a decision
by the partner in bankruptcy to assume or reject the partnership
agreement." | The Committee proposes
specific language to modify the Bankruptcy Code as outlined
above. |
NBRC-
0890 | Larry E. Ribstein | GMU Foundation
Professor of Law, George Mason University | Wake Forest Law Review article by author entitled "The
Illogic and Limits of Partners' Liability in
Bankruptcy" |
|
| In general, author believes that
bankruptcy law should not supplant state law in the area of partnerships
and LLC's without a compelling reason for doing so. "First,
federal prohibitions on ipso facto clauses unnecessarily interfere with
efficient private contracts." "Second, state competition and
experimentation are more likely to produce rules that efficiently
balance partner and creditor interests than imposing a single federal
law." "Third, state partnership law is better able than
federal law to take into account rapidly changing circumstances
affecting business organizations." "Fourth, by trupming state
law rights, bankruptcy law gives partners and creditors perverse
incentives to initiate costly and unnecessary bankruptcy
proceedings." Author goes on to discuss particular suggestions he
finds objectionable. | 1) adopt Proposal A to
clarify that Code §365 does not apply to partnerships, LlCs or
analogous firms; 2) clarify the enforceability of partnership and
analogous agreements regarding rights of bankrupt partners; 3) clarify
that neigher §362 nor any other Code provision interferes with the
effectuation of these agreements; 4) provide that a bankrupt member's
rights in a partnership or analogous firm and whether these rights are
property of the estate under §541 and subject to control and
disposition under §363 are governed by state law. |