ULLCA 503(b)(2) Other Orders
Other_Orders Code ULLCASection503b2OtherOrders
(b) To the extent necessary to effectuate the collection of distributions pursuant to a charging order in effect under subsection (a), the court may:
(2) make all other orders necessary to give effect to the charging order.
Reporter's Comment to Subsection (b).
Paragraph (2) refers to "other orders" rather than "additional orders."
Therefore, given appropriate circumstances, a court may invoke Paragraph (1), Paragraph (2), or both.
Reporter's Comment to Subsection (b)(2) ¶ 1.
This paragraph must be understood in the context of:
(i) the very limited nature of the charging order; and
(ii) the importance of preventing overreaching on behalf of a person that is not a judgment creditor of the LLC, has no claim on the LLC's assets, and has no right to interfere in the activities, affairs, and management of the LLC. In particular, the court's power to make "all other orders" is limited to "orders necessary to give effect to the charging order."
Reporter's Comment to Subsection (b)(2) ¶ 2.
A judgment creditor with a charging order believes that the limited liability company should invest less of its surplus in operations, leaving more funds for distributions.
The creditor moves the court for an order directing the limited liability company to restrict re-investment.
Subsection (b)(2) does not authorize the court to grant the motion.
Reporter's Comment to Subsection (b)(2) ¶ 3.
A judgment creditor with a judgment for $10,000 against a member obtains a charging order against the member's transferable interest.
Having been properly served with the order, the limited liability company nonetheless fails to comply and makes a $3000 distribution to the member.
The court has the power to order the limited liability company to pay $3000 to the judgment creditor to "give effect to the charging order."
Reporter's Comment to Subsection (b)(2) ¶ 4.
Under Subsection (b)(2), the court has the power to decide whether a particular payment is a distribution, because that decision determines whether the payment is part of a transferable interest subject to a charging order.
Reporter's Comment to Subsection (b)(2) ¶ 5.
Member A of ABC, LLC has for some years received distributions form the LLC.
However, when a judgment creditor of Member A obtains a charging order against Member A's transferable interest, the LLC ceases to make distributions to Member A and instead provides a salary to Member A equivalent to former distributions.
A court might deem this salary a disguised ddistribution. (In any event, however, the salary will be subject to garnishment.)
Reporter's Comment to Subsection (b)(2) ¶ 6.
This act has no specific rules for determining the fate or effect of a charging order when the limited liability company undergoes a merger, conversion, interest exchange, or domestication under [Article] 10.
In the proper circumstances, such an organic change might trigger an order under Subsection (b)(2).
As the Reporter's Comment indicates, ¶ 2(b) gives the court wide latitude to fashion additional orders to carry out the charging order, including re-characterizing other income received by the debtor from the LLC as distributions. Example: Creditor is granted a charging order against Barbara's LLC interest. Soon thereafter, the LLC ceases to pay Barbara distributions, but she instead receives money from the LLC by way of "loans" or "management fees" or whatever. The court may re-characterize this money (known in creditor-debtor vernacular as "imputed income") as distributions. Ditto if the LLC paid Barbara's personal utility bills and credit cards, etc.
Note that savvy creditor rights counsel will often accompany a charging order with a Writ of Garnishment or some other remedy (or remedies) to as to pick up this other income no matter what the debtor and the LLC calls it.
For an excellent discussion of how a creditor may have the court include ancillary provisions in charging orders to prevent such shenanigans, see Law v. Zemp.
For court opinions dealing with compliance with a charging order click here.
For court opinions dealing with the charging order procedure generally click here.