Bankruptcy Aspects

The bankruptcy trustee cannot sell LLC or partnership property. Martin Mach. Co. v Williams (In re Newman) (8th Cir 1989) 875 F2d 668 (debtor and trustee in bankruptcy were entitled only to distributive share of profits and liquidating distributions). Furthermore, a bankruptcy trustee generally cannot exercise a LLC or general partner’s powers. A LLC operating agreement or limited partnership agreement usually is an executory contract that cannot be assumed without the consent of all of the limited partners. 11 USC §365(c)(1)(A)–(B); Crocker Nat’l Bank v Perroton (1989) 208 CA3d 1. Although a LLC or partnership interest can be sold by the bankruptcy trustee (11 USC §§363(b)(1), 363(l)), a LLC or partnership ordinarily is not required to liquidate if the LLC operating agreement or partnership agreement provides for a successor general partner. Sale of a LLC membership interest or general partnership interest can be prevented when the foreclosure would unduly interfere with the LLC or partnership business. Helman v Anderson (1991) 233 CA3d 840 (court considered whether debtor-partner possesses essential managerial skills and would no longer participate in business if interest sold).