seeking to either sell the LLC interests to a stalking horse purchaser, or conduct an auction in the event a competitive bid arose or a party in interest objected to the Sale Motion. The debtor, Kramer, objected to the Sale Motion, arguing each LLC’s operating agreement (the “Operating Agreements”) contained transfer procedures and restrictions (the “Transfer Restrictions”), with which the Trustee had not complied. The Sale Motion was also objected to by certain members of a related LLC who contended the proposed sale violated transfer restrictions in their operating agreements.The Bankruptcy Court ultimately entered an order on the Sale Motion, holding that the Transfer Restrictions were enforceable under Oklahoma and bankruptcy law and applied to membership and capital interests alike. Thus, the Bankruptcy Court held the Trustee could not sell the LLC’s membership interests unless he had complied with the Transfer Restrictions.The Trustee appealed. On appeal, the Trustee argued that section 541(c)(1) of the Bankruptcy Code overrides state law and permits the sale of membership interests otherwise prohibited by state law. Section 541(c)(1) provides:notwithstanding any provision in an agreement, transfer instrument, or applicable non-bankruptcy law –(A) that restricts or conditions transfer of such interest by the debtor; or(B) that is conditioned on the insolvency or financial condition of the debtor, on the commencement of a case under this title, or on the appointment of or taking possession by a trustee in a case under this title or a custodian before such commencement, and that effects or gives an option to effect a forfeiture, modification, or termination of the debtor's interest in property.11 U.S.C. § 541(c)(1).The Trustee argued that section 541(c)(1)(A) invalidates the Transfer Restrictions contained in each operating agreement.The court, however, was not persuaded. It held: “Section 541(c)(1) does not invalidate any of the Transfer Restrictions. First, § 541(c)(1)(A) is meant to protect the tra

igned and conveyed to Briar Capital the preference claims against the former CFO, (b) authorized Briar Capital to prosecute such claims on behalf of the bankruptcy estate and (c) conferred to Briar Capital 100% of any recoveries from the preference action.Shortly before the trial on the preference action, the district court granted the former CFO’s motion to dismiss the action based on a lack of standing, because Briar Capital was not an estate representative and any recovery thereof would not benefit the Debtor’s estate or its unsecured creditors.AnalysisOn appeal, acknowledging the lack of precedence in the Fifth Circuit, the Court ultimately held that preference actions can be sold to third-party, non-estate representatives pursuant to the plain language of the Bankruptcy Code.The Fifth Circuit started its analysis by reasoning that, as a general matter, section 363(b)(1) of the Bankruptcy Code allows a debtor in possession to sell “property of the estate.”The Court then found that section 541(a)(1) of the Bankruptcy Code, which construes “property of the estate,” is a very broad provision that is intended to cover all types of prepetition property rights and interests of a debtor, including “any property made available to the estate by other provisions of the Bankruptcy Code” and causes of action. CitingIn re Kemp, 52 F.3d 546, 550 (5th Cir. 1995) (finding section 541 covers all types of property interests);In re Greenshaw Energy, Inc., 359 B.R. 636, 642 (Bankr. S.D. Tex. 2007) (citing In re Equinox Oil Co., 300 F.3d 614, 618 (5th Cir. 2002) (“Section 541 is read broadly and is interpreted to ‘include all kinds of property, including tangible or intangible property’ [and] causes of action[.]”)).After laying down this foundation, the Fifth Circuit found that a preference action is property of a bankruptcy estate, as it is a right of action created by federal bankruptcy law to avoid a transfer of prepetition property. Citing In re Moore, 608 F.3d 253, 257-58 (5th Cir. 2010) (“”[T]he term ‘all legal and

liability company ("LLC") in In re Envision Healthcare Corp., 655 B.R. 701 (Bankr. S.D. Tex. 2023). The court held that managerial and voting interests become property of the estate on the bankruptcy petition date. It also ruled that the non-debtor members of an LLC who acted postpetition to cancel the debtor's rights under an LLC agreement, based on a state law purporting to terminate such rights upon a bankruptcy filing, violated the automatic stay. Finally, the court denied a motion to compel arbitration of the dispute over the cancellation. According to the court, the determination of what qualifies as property of the estate is within the court's "core" jurisdiction, and permitting arbitration in the case would run against the purposes of the Bankruptcy Code.The Bankruptcy Estate and the Automatic StayAn estate is created upon the commencement of a bankruptcy case. The estate includes "all legal or equitable interests of the debtor in property as of the commencement of the case." 11 U.S.C. § 541(a)(1). The scope of the estate is "broad," and it includes tangible and intangible property, causes of action, and property the debtor did not have a possessory interest in, among other things. See United States v. Whiting Pools, Inc., 462 U.S. 198, 205 (1983).The bankruptcy estate also includes any of the debtor's prepetition property interests (except for certain beneficial interests in trusts) notwithstanding any agreement or applicable non-bankruptcy law to the contrary that: (i) restricts or conditions a transfer of the debtor's interest; or (ii) is conditioned on the debtor's financial condition or the appointment of a trustee or custodian for the debtor; and (iii) effects "a forfeiture, modification, or termination of the debtor's interest in property." 11 U.S.C. §541(c). Such forfeiture, termination, or modification provisions are commonly referred to as "ipso facto" clauses.Although the Bankruptcy Code outlines the broad scope of property interests brought into the estate, it lacks

In general, the bankruptcy estate consists of “all legal or equitable interests of the debtor in property as of the commencement of the case.” 11 U.S.C. § 541(a)(1). Two provisions capture certain general categories of assets that materialize post-petition: proceeds, products, offspring, rents, or profits from property of the estate, and interests in property acquired by the estate.

ld reduce his future tax liability by a significant amount. If Debtor’s S election were revoked, however, and the corporation elected to “close the books,” Taxpayer would incur no tax liability, and the estate would have a substantial tax liability.Taxpayer’s expert painted a far more dire tax impact from the sale, opining that Taxpayer’s tax liability would be many times greater than the amount determined by Debtor’s expert. Under IRC Sec. 1362(e)(2). IRC Sec. 1362(e)(2). For example, if Vital’s S election was revoked on August 1, then 7/12th of its income and expenses would be allocated to the “S Short Year,” and 5/12th of its income and expenses would be allocated to the “C Short Year.” IRC Sec. 1362(e)(2). IRC Sec. 1362(e)(3)(A). IRC Sec. 1362(e)(3)(A). Or whether the stay applied, or whether relief from the stay should be granted. For example, a transfer to a partnership or to a foreign person, neither of which is eligible to hold shares of stock in an S corporation. Sec. 541(a). 11 U.S.C. Sec. 541. “The scope of [§ 541(a)(1) ] is broad. It includes all kinds of property, including tangible or intangible property, causes of action (see Bankruptcy Act § 70a(6)), and all other forms of property currently specified in section 70a of the Bankruptcy Act.” H.R. Rep. No. 95-595 , at 367 (1977); S. Rep. No. 95-989 , at 82 (1978). The Court observed that it was important to distinguish what may be an “asset” of the debtor from its property.“Property,” the Court continued, has a much broader meaning than “asset.” For example, real property that has substantial environmental contamination and no value may, in fact, be a liability and therefore may not be considered an asset. Yet, it is still “property.” That is why a trustee has the right – and is required – to abandon such property so the bankruptcy estate may avoid the liability. So, the term property should not be confused with asset. The seminal case is In re Trans-Line West, where the Court ruled that the revocation of a debtor’s S el

An appeals court ruled recently that chapter 5 avoidance actions are property of a debtor’s bankruptcy estate that can be sold in section 363 sales. In re Simply Essentials, LLC, No. 22-2011, 2023 U.S. App. LEXIS 21814 (8th Cir. Aug. 21, 2023). The decision follows similar rulings by other appeals courts.The debtor operated a chicken processing business and, in due course, became financially strapped. Farmers who were creditors put the debtor into bankruptcy by filing an involuntary chapter 7 petition. The Trustee appointed to handle the case wanted to bring avoidance actions against certain creditors, but the estate lacked funds to pursue the actions. Instead, the Trustee decided to sell them in a section 363 sale. Two creditors bid at an auction, and then the losing bidder filed an appeal on the question of whether the avoidance actions were property of the estate that could be sold by the debtor.Bankruptcy Code section 541(a) provides that estate property includes “all legal or equitable interests of the debtor in property as of the commencement of the case.” And section 541(a)(7) states that property of the estate includes “[a]ny interest in property that the estate acquires after the commencement of the case.” The Supreme Court has made clear that the term “property of the estate” should be interpreted broadly to include “any property made available to the estate by other provisions of the Bankruptcy Code.” See United States v. Whiting Pools Inc., 462 U.S. 198, 205 (1983). In addition, a debtor need not “hold a possessory interest in the property at the commencement of reorganization proceedings.” 462 U.S. at 206.In Simply Essentials, the Eighth Circuit noted that “property of the estate includes inchoate or contingent interests held by the debtor prior to filing of bankruptcy.” 2023 U.S. App. LEXIS 21824, at *6. “Because debtors have the right to file for bankruptcy and the debtor in possession or the T

Id.On his bankruptcy disclosure forms, the debtor scheduled interests in over $1.7 million held in various retirement accounts, including a 401(k), a traditional IRA, and two Roth IRAs, and he exempted the entire value of those accounts under various subsections of O.C.G.A. § 44-13-100(a). Id.Following an objection to the debtor’s claimed exemptions in these accounts, the bankruptcy court addressed, among other things, the following issues: (a) whether the two Roth IRAs were excluded from the debtor’s bankruptcy estate under 11 U.S.C. § 541(c)(2); and (b) if they were property of the bankruptcy estate, whether they were exemptible under Georgia’s exemption statutes. Id. at 563-64.

The Trustee pointed to section 541 of the Code, which includes “[p]roceeds, product, offspring, rents, or profits of or from property of the estate” as part of the property of a bankruptcy estate. 11 U.S.C. § 541(a)(6). The Tenth Circuit rejected this argument for several reasons.

Property of the bankrupt debtor’s estate does not include “any interest of the debtor in liquid or gaseous hydrocarbons to the extent that … (i) the debtor has transferred such interest pursuant to a written conveyance of a production payment to an entity that does not participate in the operation of the property from which such production payment is transferred; and (ii) but for the operation of this paragraph, the estate could include the interest referred to in clause (i) only by virtue of section 365 or 542 of this title.” 11 U.S.C. §541(b)(4)(B).If a VPP does not fall under the Section 541(b) safe harbor, then the VPP may still be excluded from the debtor’s estate under Section 541(a) of the U.S. Bankruptcy Code to the extent that the conveyance of the VPP prior to the commencement the bankruptcy case was a true conveyance by the debtor of an interest in real property under the laws of the state in which the underlying properties are located. Consideration should be given as to whether the state law considers a term overriding royalty interest to be personal property or whether state law is unclear or inconsistent as to classifying mineral and lease interests.

L. REV. 5, 6, 16 (1995).3 Ehring v. Western Cmty. Moneycenter (In re Ehring), 91 B.R. 897, 903 (B.A.P. 9th Cir. 1988).4 11 U.S.C. §541(a)(1).5 11 U.S.C. §541(a)(2) (all community property is includ - ed in property of the estate, except for community property that is under the sole management of the debtor’s spouse).6 11 U.S.C. §541(a)(5).7 11 U.S.C. §§541(a)(3), 542, 543, 547, 548, 550.8 United States v. Sims (In re Feiler), 218 F. 3d 948 (citing S. REP. No. 989 (1978), reprinted in 1978 U.S.C.C.A.N. 5787, 5868; H.R. REP. No. 595 (1978), reprinted in 1978 U.S.C.C.A.N. 5963, 6323 (footnote omitted)).9 The Bankruptcy Code provides a separate section for turnover of estate property by custodians.