On August 29, 2025, the Delaware Bankruptcy Court issued a dismissal order in In re Bedmar, LLC that stands as one of the clearest applications of the “manufactured bankruptcy” doctrine to emerge from the post-Third Circuit landscape. Judge J. Kate Stickles dismissed the Chapter 11 case under Section 1112(b) for lack of good faith, finding that Bedmar LLC was created and filed as a tactic to isolate lease liabilities from the broader National Resilience enterprise. The decision extends and applies the Third Circuit’s LTL Management precedent and demonstrates that courts, particularly in Delaware, are taking seriously the proposition that artificial corporate structures formed to manipulate bankruptcy jurisdiction will not be tolerated.

Bedmar LLC was formed on June 3, 2025, through a series of divisional mergers under Section 18-217 of the Delaware LLC Act. The transactions began with the creation of a new ultimate parent, National Resilience Holdco, Inc., and the conversion of the original parent, National Resilience, Inc., into an LLC. National Resilience, a biopharmaceutical contract manufacturing organization, had faced significant financial pressures stemming from an aggressive post-COVID expansion strategy that left it with underutilized and non-operational facilities. Rather than placing the entire enterprise into Chapter 11, the company executed a divisive merger strategy that allocated seven burdensome leases, related guaranties, approximately $41.4 million in cash and receivables, and a 51% interest in an affiliate to the newly formed Bedmar. Just six days later, on June 9, 2025, Bedmar filed for Chapter 11. The Debtor’s Schedules listed approximately $32.9 million in liabilities (reflecting anticipated capped lease rejection damages), while the Debtor later asserted that the full contractual lease liability exceeded $372 million. The court found the filing was designed to invoke Section 502(b)(6)’s damages cap for the benefit of non-debtor affiliates and shareholders, and characterized the bankruptcy as manufactured.

The Delaware Bankruptcy Court’s analysis leaned heavily on the Third Circuit’s LTL Management decision, which reinforced that a good-faith Chapter 11 filing requires genuine, apparent, and immediate financial distress. Critically, the court followed LTL in evaluating Bedmar’s financial condition independently of its corporate family, noting that there was no parent guaranty or funding backstop that would justify looking to enterprise-wide distress. Examined on its own, Bedmar’s financial disclosure documents showed assets exceeding scheduled liabilities as of the Petition Date, and the Independent Manager testified that allocated assets were sufficient to pay the anticipated capped claims. The court found that any apparent distress was not organic but had been “structured, by design” through the Corporate Transactions — the Debtor had been allocated just enough cash and receivables to pay capped lease claims and professional fees. These findings made clear that the good faith requirement was not satisfied.

The court also found that the filing failed to serve any other valid bankruptcy purpose. Bedmar had no employees, no business operations, no income, and relied entirely on non-debtor affiliates for corporate services. It could not preserve a going concern because it had none to preserve. And under the Third Circuit’s Integrated Telecom decision, the filing did not maximize estate value — it merely invoked Section 502(b)(6)’s distributional mechanism to shift value from landlord-creditors to the enterprise’s shareholders. As the court observed, the Bankruptcy Code’s redistributive provisions cannot themselves supply a valid bankruptcy purpose.

Beyond the absence of a valid purpose, the court found that the petition was filed for a tactical litigation advantage — an independent basis for dismissal under Third Circuit precedent. The court pointed to an email from the CEO describing the strategy as using “a legal tool to rid Resilience of the toxic sites,” and found that the Corporate Transactions and bankruptcy filing were orchestrated to eliminate non-debtor affiliates’ lease and guaranty obligations while preserving enterprise value for shareholders. The court noted that the filing may also deprive landlords of contractual rights and potential claims, though it declined to rule on whether landlord claims under leases and separate guaranties could be collapsed under Section 502(b)(6) — an issue not yet settled in the Third Circuit.

Notably, the court expressly declined to rule on whether the Corporate Transactions constituted fraudulent transfers or violated the Delaware LLC Act, finding those questions unnecessary to its good-faith analysis. The court also emphasized that it was not holding that an entire enterprise must always file for bankruptcy to satisfy the good-faith standard, and limited its findings to the specific facts before it.

Why This Matters

The Bedmar decision provides important guidance to practitioners and corporate executives on the limits of using bankruptcy to restructure around burdensome contracts or isolated liability categories. While Chapter 11 exists to facilitate the reorganization of financially distressed debtors, it is not available as a general-purpose tool for shedding unwanted obligations or implementing strategic business realignments. Courts will examine whether the debtor’s financial distress is genuine and whether the filing serves legitimate bankruptcy purposes or merely implements a preexisting business plan motivated by considerations other than financial necessity.

For companies operating through multiple subsidiaries or legal entities, the decision reinforces that bankruptcy courts will look to substance over form when applying the good-faith gateway, even where the underlying corporate transactions comply with state entity law. The Bedmar ruling makes clear that manufactured bankruptcies, i.e. those orchestrated to capture distributional benefits of the Bankruptcy Code without genuine financial distress, will be dismissed, and that the Delaware LLC Act’s divisive merger mechanism does not immunize a resulting debtor from good-faith scrutiny under Section 1112(b).