ULLCA 503(e) Redemption Of Foreclosed Interest

Redemption Code ULLCASection503eRedemption

(e) At any time before foreclosure under subsection (c), a limited liability company or one or more members whose transferable interests are not subject to the charging order may pay to the judgment creditor the full amount due under the judgment and thereby succeed to the rights of the judgment creditor, including the charging order.

Reporter's Comment to Subsection (e) ¶ 1.

Traditionally, charging order provisions referred to the possibility of “redeeming” an interest subject to a charging order.
That usage was confusing, leaving several important questions unanswered.
This act substitutes a far simpler approach, contemplating the limited partnership or its members buying the underlying judgment and thereby dispensing with any interference the judgment creditor might seek to inflict on the partnership.

Reporter's Comment to Subsection (e) ¶ 2.

In many circumstances, buying the judgment is superior to the mechanism provided by this subsection, because:
(i) this subsection requires full satisfaction of the underlying judgment; and
(ii) the LLC or the other members might be able to buy the judgment for less than face value.
On the other hand, this subsection operates without need for the judgment creditor’s consent, so it remains a valuable protection in the event a judgment creditor seeks to do mischief to the LLC.

Reporter's Comment to Subsection (e) ¶ 3.

Whether a member-managed LLC’s decision to invoke this subsection is “ordinary course” or “outside the ordinary course,” Section 407(b)(3) and (4)(A), depends on the circumstances.
However, the involvement of this subsection does not by itself make the decision “outside the ordinary course.”
For a manager-managed LLC, the distinction is irrelevant. Section 407(c)(1).


Paragraph (e) sets out a "redemption mechanism" that probably nobody in their right mind will ever use, since (1) it requires that the non-debtor members pay the full amount of the judgment to redeem, which amount will usually exceed the value of the interest, but (2) the non-debtor members will very likely be able to obtain the debtor's transferable interest at a much lower price by bidding cash at the judicial sale, where the creditor will likely be happy-as-a-clam to get cash for a dubious asset.