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socrateaser
socrateaser, Attorney
Category: Bankruptcy Law
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Experience:  Attorney and Real Estate Broker -- Retired (mostly)
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My family is filling a Chapter 12 bankruptcy under a family

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My family is filling a Chapter 12 bankruptcy under a family farm. All partners have signed the petition but one partner. That one partner is taking the others to court saying that it is an involuntary bankruptcy and under code section 303 that is not permitted in chapter 12. So the one partner is using this to get the bankruptcy thrown out. Can this one partner do this? Do all partners have to sign for a chapter 12 bankruptcy? Also not all partners signed the original loan so why would all need to sign the bankruptcy if that’s the law? The partner who is not signing is also one of the ones who signed for the loan.
My family is filling a Chapter 12 bankruptcy under a family farm. All partners have signed the petition but one partner. That one partner is taking the others to court saying that it is an involuntary bankruptcy and under code section 303 that is not permitted in chapter 12. So the one partner is using this to get the bankruptcy thrown out. Can this one partner do this? Do all partners have to sign for a chapter 12 bankruptcy?

A: If your partnership is a "general partnership," i.e., a partnership in which all partners have equal management powers, because either there is an agreement granting such powers, or no written agreement at all, then the answer is "yes." Under California law, all members of a general partnership must consent to acts done outside of the ordinary course of business -- which would include a bankruptcy petition. Cal. Corps. Code § 16301(2).

Also not all partners signed the original loan so why would all need to sign the bankruptcy if that’s the law?

A: See above.

I wish I had a workaround for you -- but, if there is no partnership agreement which limits management powers to those who have agreed to the bankruptcy, then the bankruptcy court will be forced to dismiss the petition.

Please let me know if I can clarify or be of further assistance.

Customer: replied 4 years ago.

 


This bankruptcy is filed in Oregon not California. Also not all the partners have the same amount of interest in the farm. Some have more shares then others.

My apologies, re California. However, Oregon law is in accord. ORS 67.090(2) provides that all partners must agree to any partnership act not in the "ordinary course of business."

Concerning separate shares, please tell me, is this partnership a general partnership (not registered with the state, or a registered LP, LLP or LLC?

Thanks in advance.
Customer: replied 4 years ago.

 


It is a general partnership. If the bankruptcy is void because one partner did not sign wouldn’t that make the loan void because not all partners signed? I’m just confused why all would have to sign for the bankruptcy but not the loan.

It is a general partnership. If the bankruptcy is void because one partner did not sign wouldn’t that make the loan void because not all partners signed?

A: A loan is a contract between a lender and a borrower. A borrower who accepts the benefits of a contract (the loan proceeds), and pays according to the contract's terms (even for a short period of time), impliedly accepts the contract under which the benefits are promised, (i.e., an implied-in-fact contract). Similarly, accepting the proceeds of the loan and never making a payment, even without the consent of the partners, could create an "implied-in-law" contract, which is a contract created by law to avoid the unjust enrichment of one party at another's expense. Here again, accepting the loan proceeds can be used to imply the existence of a contract, even without any express consent.

A bankruptcy petition is not a contract. It is a right, guaranteed by the U.S. Constitution, and implemented by Congressional Acts, and federal court interpretation. Bankr. Code Section 1221 requires that a Chapter 12 petition must be voluntary. A voluntary act of a partnership, not in the ordinary course of business requires the consent of all partners, under ORS 67.090(2).

Once again, I realize that my finding no clear workaround may be untenable, but I cannot change the law. If, for example, you could show that your respective shares were intended to provide proportionate voting rights, and the majority of shares have voted for bankruptcy, then that would permit you to file the bankruptcy. Otherwise, each partner has equal rights in the management and conduct of the partnership business. ORS 67.140(7).

Hope this helps.
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