LLC Operating Agreements May Prohibit Bankruptcy Filings

                

In a case of first impression, In re DB Capital Holdings, LLC,[1] the Bankruptcy Appellate Panel for the Tenth Circuit (“B.A.P.”) held that a provision in a limited liability company’s (“LLC”) operating agreement prohibiting the LLC’s members or its management from filing a bankruptcy petition is valid.[2]  In May 2010, DB Capital’s manager filed a chapter 11 bankruptcy petition on behalf of DB Capital (“the debtor”).[3]  The B.A.P. affirmed the bankruptcy court’s order dismissing the chapter 11 case pursuant to 11 U.S.C. § 1112(b),[4] holding that a provision in the operating agreement expressly barring the debtor’s manager from filing for bankruptcy was valid.[5]