Law School Case Brief

In re Albright - 291 B.R. 538 (Bankr. D. Colo. 2003)

Rule:

Colo. Rev. Stat. § 7-80-702 of the Colorado Limited Liability Company Act, Colo. Rev. Stat. § 7-80-101 et seq., requires the unanimous consent of "other members" in order to allow a transferee to participate in the management of a limited liability company (LLC). Where there are no other members in the LLC, no written unanimous approval of the transfer is necessary.

Facts:

Ashley Albright, the debtor in a Chapter 7 case, was the sole member and manager of a Colorado limited liability company named Western Blue Sky LLC. The LLC was not a debtor in bankruptcy. The Chapter 7 trustee contended that because the Albright was the sole member and manager of the LLC at the time she filed bankruptcy, she was the one controlling the LLC, and she may cause the LLC to sell the Real Property it owned and distribute the net sales proceeds to his bankruptcy estate. The Debtor argued that the Trustee was acting merely for her creditors and was only entitled to a charging order against distributions made on account of her LLC member interest.

Issue:

As the sole member and manager of the limited liability company, could Albright cause the LLC to sell the property and distribute its net sales proceeds to his bankruptcy estate?

Answer:

Yes.

Conclusion:

The bankruptcy court agreed with the trustee's position and held that the debtor's bankruptcy filing assigned her entire membership interest in the LLC to the bankruptcy estate, pursuant to 11 U.S.C.S. § 541, and the trustee obtained all her rights, including the right to control the LLC's management. The Colorado Limited Liability Company Act, Colo. Rev. Stat. § 7-80-101 et seq., provided that the members, including the sole member of a single member limited liability company, had the power to elect and change managers. Where the trustee became the sole member of the LLC upon the debtor's bankruptcy filing, then the trustee controlled all governance of the LLC, including all decisions related to any liquidation of the LLC's assets.