Management And Voting Rights Of Creditors

Topic Management_Voting TopicsManagementVotingRights

The LLC and partnership acts state that a holder of a charging order is only a mere lienholder, and thus is not entitled to any management or voting rights of the entity whose interest has been charged. Similarly, even upon a foreclosure of an interest, the purchaser of the interest at the foreclosure sale becomes no better than an "involuntary assignee" who similarly has no management or voting rights (these remain with the debtor/member), which is one of the reasons why smart creditors rarely bother to foreclose the charging order lien.

Yet, courts continue to face arguments by creditors that as holders of charging orders they should have the right to participate in the management of the entity and vote the D/M's interests. While the courts have so far rejected these challenges (at least outside the SMLLC context), it would be preferable to amend the statute to make this more clear.