LLC Operating Agreement Prohibiting Bankruptcy Filing is Enforceable


This might not be man bites dog news, but in the structured finance world, it ranks pretty close. A U.S. bankruptcy court has ruled that a borrower can agree not to file bankruptcy.

It all starts with the development of a high-end condo project in Aspen, Colorado called Dancing Bear Aspen.

In December 2010, the Tenth Circuit Bankruptcy Appellate Panel affirmed a Colorado bankruptcy court order granting a motion to dismiss a bankruptcy petition filed on behalf of DB Capital Holdings, LLC (the “Debtor”) which developed Dancing Bear Aspen. The Court affirmed the lower court’s finding that the Debtor’s LLC Operating Agreement expressly barred the Debtor from filing for bankruptcy.

The Debtor’s LLC Operating Agreement stated that the Debtor “to the extent permitted under applicable Law, will not institute proceedings to be adjudicated bankrupt or insolvent; or consent to the institution of bankruptcy or insolvency proceedings against it; or file a petition seeking, or consent to, reorganization or relief under any applicable federal or state law relating to bankruptcy….”

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