The area of law dealing with preferential transfers with respect to bankrupt limited liability companies is somewhat clearer thanks to a recent decision by the Seventh Circuit Court of Appeals.1 In In re Longview Aluminum, LLC, the court affirmed the holdings of the bankruptcy court and district court, which allowed a chapter 11 trustee to avoid certain prepetition payments made by an LLC debtor to one of its managing members nearly four months before the LLC filed for bankruptcy. Section 547(b)(4)(A) of the Bankruptcy Code provides that a trustee may avoid certain transfers made by a debtor to a non-insider within 90 days of the debtor’s petition date.
Under §547(b)(4)(B), however, payments made by a debtor to an “insider” may be avoided by a trustee to the extent such transfers were made up to one year before the bankruptcy filing. While the Bankruptcy Code defines the term “insider” in both the corporation and partnership contexts, it lacks express guidance on what entities may be “insiders” of an LLC. In Longview, the Seventh Circuit held that the district court was correct in concluding that a member of an LLC could be a statutory insider within the meaning of 11 U.S.C. §101(31)(B), pointing to the similarity between the role of a corporate director and that of an LLC member. Even though the majority of the board of managers of the LLC effectively blocked the member in question from controlling the company, such action was not enough to remove the member’s status as an insider, since he still had meaningful rights as a member on the board.
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