Recently on June 6, 2016, the Delaware Bankruptcy Court considered a motion to dismiss the Intervention Energy Holdings, LLC, et al. bankruptcy proceeding. On May 20, 2016, Intervention Energy Holding, LLC (“IE Holdings”) and Intervention Energy, LLC (“IE”) filed a voluntary chapter 11 bankruptcy petition in the United States Bankruptcy Court for the District of Delaware (the “Voluntary Petition”). For a link to a post summarizing the bankruptcy filing, click here.
On May 24, 2016, EIG Energy Fund XV-A, L.P. filed a motion to dismiss asserting that IE Holdings was not authorized to file the Voluntary Petition. EIG argues that, absent its consent to commence a chapter 11 case, IE Holdings lacked authority to file the Voluntary Petition under the Intervention Energy Holdings, LLC Second Amended and Restated Limited Liability Company Agreement (the “Operating Agreement”) (D.I. 27, Ex. H), which requires “approval of all Common Members . . . [to] commence a voluntary case under any bankruptcy”.
On January 6, 2012, the Debtors and EIG entered into a Note Purchase Agreement (the “Note Purchase Agreement”), whereby EIG provided up to $200 million in senior secured notes (the “Secured Notes”). EIG and the Debtors then entered into a string of amendments to the Note Purchase Agreement. The parties then entered into a forbearance agreement on Dec. 28, 2015, and on the same date, IE Holdings enacted Amendment No. 1 to the Intervention Energy Holdings, LLC Second Amended and Restated Limited Liability Company Agreement (the “Amendment”) to include the unanimous consent requirement to file bankruptcy (the “Consent Provision”). To give effect to the Consent Provision, IE Holdings then issued a single common unit to EIG for a common capital contribution of $1.00, making EIG a common member. But for the Amendment, IE Holdings would have been authorized to file for bankruptcy.
In denying EIG’s motion to dismiss in part, Judge Carey stated:
A provision in a limited liability company governance document obtained by contract, the sole purpose and effect of which is to place into the hands of a single, minority equity holder the ultimate authority to eviscerate the right of that entity to seek federal bankruptcy relief, and the nature and substance of whose primary relationship with the debtor is that of creditor—not equity holder—and which owes no duty to anyone but itself in connection with an LLC’s decision to seek federal bankruptcy relief, is tantamount to an absolute waiver of that right, and, even if arguably permitted by state law, is void as contrary to federal public policy.
A copy of Judge Carey’s June 6, 2016 decision can be found here. In addition, a newly-published Alert on the decision penned by my colleague Raymond Patella can be found on the Fox Rothschild website.
Carl D. Neff is a bankruptcy attorney with the law firm of Fox Rothschild LLP. Carl is admitted in Delaware and regularly practices before the United States Bankruptcy Court for the District of Delaware. You can reach Carl at (302) 622-4272 or at email@example.com.