In RE: Blixseth, the 9 circuit Court of Appeals reversed a Nevada bankruptcy court decision and has reinstated the forced bankruptcy case against former billionaire Timothy Blixseth filed by the State of Montana for failure to pay taxes.
9th Circ. BAP found: The bankruptcy court erred in finding that, for venue purposes: (i) intangible assets (here, equity interests in a NV LLC and LLLP) have no location or (ii) alternatively, such assets are located at the debtor's residence.
Here, the alleged involuntary debtor's principal assets were his interests in a Nevada LLC and LLLP. These are intangible interests which have no physical location. The location or situs of intangible property is a "legal fiction." For bankruptcy venue purposes, the principal place of assets should logically be construed in a way most resonant with the functional concerns of the administration of the bankruptcy estate since all assets in question will be administered by a trustee serving under the jurisdiction of the forum court. Thus, the bankruptcy court erred by taking a bright-line approach. Under the circumstances of this case, the equity interest should be considered to be located in Nevada, even though the debtor did not live there or physically do business there. Thus, venue was proper in Nevada.
What implications does this have for others who seek to protect their assets through trusts located in states other than those where the assets exist? Given it took several years from the point at which these assets were moved into Nevada (2008) until this final ruling allowing the forced bankruptcy case (for debts owed prior to 2009) to move forward and during which time the majority of these assets were disposed of - it appears the debtor (Blixseth) while being forced into bankruptcy will have used the courts to avoid having to pay anyway, so is this a moot point and can the tactic of hiding assets in remote states still be effective?
9th Circ. BAP found: The bankruptcy court erred in finding that, for venue purposes: (i) intangible assets (here, equity interests in a NV LLC and LLLP) have no location or (ii) alternatively, such assets are located at the debtor's residence.
Here, the alleged involuntary debtor's principal assets were his interests in a Nevada LLC and LLLP. These are intangible interests which have no physical location. The location or situs of intangible property is a "legal fiction." For bankruptcy venue purposes, the principal place of assets should logically be construed in a way most resonant with the functional concerns of the administration of the bankruptcy estate since all assets in question will be administered by a trustee serving under the jurisdiction of the forum court. Thus, the bankruptcy court erred by taking a bright-line approach. Under the circumstances of this case, the equity interest should be considered to be located in Nevada, even though the debtor did not live there or physically do business there. Thus, venue was proper in Nevada.
What implications does this have for others who seek to protect their assets through trusts located in states other than those where the assets exist? Given it took several years from the point at which these assets were moved into Nevada (2008) until this final ruling allowing the forced bankruptcy case (for debts owed prior to 2009) to move forward and during which time the majority of these assets were disposed of - it appears the debtor (Blixseth) while being forced into bankruptcy will have used the courts to avoid having to pay anyway, so is this a moot point and can the tactic of hiding assets in remote states still be effective?
Bankruptcy Wizard
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