The Impact of Your Partner’s Bankruptcy on Your Joint Venture

In a joint venture, a bankruptcy filing by your co-venturer can present serious consequences to your interest in the joint venture. Under § 365(a) of Title 11 of the United States Code (the “Bankruptcy Code”), a debtor in bankruptcy has the ability to assume or reject its executory contracts, subject to certain limitations. Often, a joint venture’s operating agreement will be characterized as an executory contract and, thus, subject to assumption or rejection under the Bankruptcy Code by the co-venturer that filed for bankruptcy protection. This article examines the effect of such assumption or rejection on the non-filing joint venture members.