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- Chapter VII Permissible Consolidations
Chapter VII, B. Other Business Entities
Jurisdiction | United States |
B. Other Business Entities
1. Partnerships
While the factors cited by courts and commentators are usually phrased in a corporate context, the factors set forth for corporations appear equally relevant and have been applied in cases involving partnerships. For example, in In re Hedged-Investments Associates, an adversary proceeding was commenced by the chapter 7 trustee seeking to recover certain fraudulent transfers.235 The trustee moved to consolidate the bankruptcy cases of three limited partnerships and one corporation that allegedly had been created and used on a fluid basis by the general partner to perpetuate a Ponzi scheme.236 The trustee ultimately amended the substantive consolidation motion to remove the corporation, and only sought consolidation of the limited partnerships.237 The court stated, however, that there was "no logical reason why the corporate case ... was not also substantively consolidated with the cases for the limited partnerships for purposes of bankruptcy."238 While this comment was made in dicta, it indicates a clear openness of the court to permit the consolidation of partnerships with other business entities.
Some courts, however, have questioned their ability to order substantive consolidation of a debtor with a nondebtor partnership. For example, in In re DRW Property, the court stated that it was "unaware of any statutory or common law authority to substantively consolidate debtor and non-debtor partnerships," concluding that the "non-debtor partnerships are certainly well outside of the scope of this Court's jurisdiction."239 Likewise, the court in In re Alpha & Omega Realty Inc. determined that a debtor corporation could not be consolidated with a nondebtor-affiliated partnership.240 However, other courts have found it within their equitable powers to order the consolidation of debtors with nondebtor partnerships.241 For more information on the limitations on substantively consolidating debtors with non-debtors, see Chapter VIII.
2. LLCs
More recently, courts have determined that these factors should apply as well to limited liability companies. For example, in In re The Lodge at Big Sky, the bankruptcy court permitted the substantive consolidation of two affiliated, single-member limited liability companies.242 The authors are not aware of any court denying a motion for substantive consolidation solely on the basis that one of the entities that the movant wishes to consolidate is a limited liability company. Indeed, in...
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- Chapter VII, C. Individuals and Business Entities
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