![]() ![]() ![]() Some operating agreements contain provisions that terminate distributions if a charging order is entered against a member. 42:2C-43, provides that a judgment creditor may “charge the transferable interest of the member with payment of the unsatisfied amount of the judgment with interest” and that such an order is “the sole remedy of the judgment creditor.” It goes on to state that the creditor has not right to interfere with the management, force dissolution or seek to foreclose the interest. They fall into the class of interest holders known as transferees – people or entities that have a right to receive distributions payable to an individual member – but which have no rights in the management of the company whatsoever. And there is the rub as far as creditors are concerned. A charging order gives the creditor no rights other than to receive the debtor’s distributions when they are made – and if they are made. The RULLC has been slow to gain acceptance in individual states, and one of the reasons was this particular provision permitting the foreclosure of an interest.Ĭareful drafting of an operating agreement for an LLC can make life very difficult for creditors of the individual members. There are dozens of uniform acts, ranging from the almost universally adopted Uniform Commercial Code to laws from adoptions to wage withholdings. The Uniform Law Commission proposes uniform acts for adoption by the states in various areas in an attempt to promote uniformity among the states. ![]() What that meant was that if the judgment creditor was being paid, it had a right to seek a foreclosure of the interest, meaning that it would be sold at a judicial auction. The RULLC was based on a model act devised by the Uniform Law Commission and contained a provision that allowed judgment debtors to foreclose an interest under certain circumstances. It only works if any money is actually distributed to the members. Under most state limited liability company statutes, a creditor has the right obtain a charging order that provides that when an LLC distributes money to its members, the debtors share goes to the party holding the charging order. Under the prior statute, a creditor’s right was limited to a “charging order.” The amendment to the statute simply restores the prior law. This particular aspect of the Revised Uniform Limited Liability Company Act (RULLC) is one of the more controversial provisions of the newly enacted statute because it eliminated a key asset protection aspect of LLCs. Foreclosure of LLC Member Interests Eliminated A recent amendment to New Jersey’s limited liability company law changes the rights of creditors seeking to collect a judgment from a member of a limited liability company, eliminating the creditor’s right to foreclose the member’s interest. ![]()
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