No.
As reported by Robin Miller of CBAR, a Court will decline to order substantive consolidation of Chapter 7 debtors with non-debtor LLC.
Substantive consolidation, generally:
Substantive consolidation is a judicially-created doctrine that treats separate legal entities as if they were merged into a single entity, pooling the assets and liabilities of the two entities, so that the assets of the two entities may result in a common fund available to satisfy the debts of both entities to ensure the equitable treatment of all creditors. The Sixth Circuit has recognized substantive consolidation as a function of the court’s equitable power under Code § 105. See In re Cyberco Holdings, Inc., 734 F.3d 432 (6th Cir. 2013). Substantive consolidation requires proof that (1) prepetition the entities disregarded separateness so significantly their creditors relied on the breakdown of entity borders and treated them as one legal entity, and (2) postpetition their assets and liabilities are so scrambled that separating them is prohibitive and hurts all creditors. In re Owens Corning, 419 F.3d 195 (3d Cir. 2005).
Substantive consolidation of non-debtor, generally:
Substantive consolidation is an extreme remedy that is used only where there are no other adequate remedies, particularly where the entity sought to be consolidated is not itself already a debtor in bankruptcy. Traditional substantive consolidation generally involves the merger of two debtors, but some courts have allowed substantive consolidation of a debtor with a non-debtor.
Court declines to order substantive consolidation of Chapter 7 debtors with non-debtor LLC:
Even if the Chapter 7 trustee alleged a plausible basis for substantively consolidating the Chapter 7 debtors with their closely-held limited liability company, the court would not utilize its equitable power to consolidate the debtors with a company that had not filed for bankruptcy, thereby effectively placing the company in an involuntary bankruptcy case without the protections normally attending an involuntary petition, especially since the trustee sought consolidation nunc pro tunc to petition date.
In re Howland, 518 B.R. 408 (Bankr. E.D. Ky., Oct. 2, 2014), appeal filed, Case No. 5:14-cv-426 (E.D. Ky., filed Nov. 19, 2014)
(case no. 5:12-bk-51251; adv. proc. no. 5:14-ap-5019) (Bankruptcy Judge Gregory R. Schaaf)