State Court Receivership Did Not Prevent Bankruptcy Filing
In 530 Donelson, the U.S. Bankruptcy Court for the Middle District of Tennessee recently considered whether orders entered by a Tennessee state court appointing and empowering a receiver deprived the limited liability company's owners of authority to file a bankruptcy case for the company.
June 03, 2024 at 10:08 AM
10 minute read
Today we continue to review situations involving distressed commercial real estate. There has been a lot of press recently about huge institutional real estate funds holding portfolios of commercial property with values of $7 billion-$10 billion, but there are thousands of commercial real estate entities—often operated as limited liability companies or partnerships with a limited number of investors—that own and operate commercial real estate. Usually, the debt structure is fairly straightforward. In those entities, when the property loses tenants and requires redevelopment or refinancing, issues often arise among the members of the entity on how to address redevelopment of the property and loan indebtedness. If not resolved, the members may initiate state court proceedings against each other, which may include a request to appoint a receiver to manage the entity and the property during the pendency of the litigation. And of course the lender may institute its own proceedings to collect the loan and appoint a receiver during the pendency of the proceeding. One question is whether, and how, a receiver impacts the authority of the managing member or general partner to file a Chapter 11 case for the entity.
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