In a case characterized as a “matter of great local interest,” Bankruptcy Judge Kevin Gross determined a question of much wider interest to practitioners: whether a contract was void ab initio because the Delaware limited liability company that executed it had not yet been formed.

The case, In re Delaware Sports Complex, Case No. 17-11175-KG (Bankr. D. Del. Aug. 21), concerned a nonresidential lease between the debtor and the town of Middletown for property on which the debtor intended to develop a sports complex with athletic fields and buildings devoted to sports and entertainment. When the debtor entered into the lease, the limited liability company had not yet been formed despite a lease provision in which the debtor represented and warranted that it was “a limited liability company duly formed and validly existing under the laws of Delaware.” The debtor was not actually formed until after the town had issued a notice of defaults under the lease.

After the town sent the notice, and while the debtor's principal was attempting to cure the defaults, the town commenced a summary possession action in Justice of the Peace Court. The debtor then filed a voluntary bankruptcy petition which stayed the summary possession action. The issues pending before the Bankruptcy Court were whether the lease had been terminated before the debtor's bankruptcy filing and, if not, whether the town's interest as landlord could be subordinated to the lien of the post-petition lender under the debtor's financing agreement.