The Creditor's Remedy Against A Debtor's Interest In An LLC Or Partnership
New Hampshire Charging Order
N.H. Rev. Stat. § 304-A:28. Partner's Interest Subject to Charging Order.
I. On due application to a superior court by any judgment creditor of a partner, the court may charge the interest of the debtor partner with payment of the unsatisfied amount of such judgment debt with interest thereon; and may then or later appoint a receiver of his share of the profits, and of any other money due or to fall due to him in respect to the partnership, and make all other orders, functions, accounts and inquiries which the circumstances of the case may require.
II. The interest charged may be redeemed at any time before foreclosure, or in case of a sale being directed by the court may be purchased without thereby causing a dissolution:
(a) With separate property, by any one or more of the partners, or
(b) With partnership property, by any one or more of the partners with the consent of all the partners whose interests are not so charged or sold.
III. Nothing in this chapter shall be held to deprive a partner of his right, if any, under the exemption laws, as regards his interest in the partnership.
N.H. Rev. Stat. § 304-B:41. Rights of Creditor.
On application to a court of competent jurisdiction by any judgment creditor of a partner, the court may charge the partnership interest of the partner with payment of the unsatisfied amount of the judgment with interest. To the extent so charged, the judgment creditor has only the rights of an assignee of the partnership interest. This chapter does not deprive any partner of the benefit of any exemption laws applicable to his partnership interest.
LIMITED LIABILITY COMPANIES
N.H. Rev. Stat. § 304-C:126. Charging Orders.
I. On application to a court of competent jurisdiction by any judgment creditor of (a) a member of a limited liability company (the “debtor-member”) or (b) a transferee of all or any part of a member's limited liability company interest (a “transferee”), the court may enter a charging order against the limited liability company in respect of the limited liability company interest of the debtor-member or the transferee for the unsatisfied amount of the judgment plus interest.
(a) A charging order constitutes a lien on a debtor-member's or transferee's limited liability company interest.
(b) Under a charging order, a judgment creditor has only the right to receive distributions to which the debtor-member or transferee would otherwise have been entitled from the limited liability company, and only to the extent of the judgment, including interest.
(c) A judgment debtor that obtains a charging order does not thereby become the holder of the debtor-member's or transferee's limited liability company interest.
III. This section does not deprive any judgment debtor of the benefit of any exemption law applicable to the judgment debtor's membership rights.
IV. Except as provided in paragraphs VI and VII, a charging order is the sole and exclusive remedy by which a judgment creditor of a debtor-member may satisfy a judgment from a debtor-member's membership rights or from the assets of a limited liability company. This section is not exclusive as to the rights of creditors with respect to the limited liability company interests of transferees.
(a) The remedy of execution upon a debtor-member's membership rights shall be unavailable to a judgment creditor attempting to satisfy a judgment against a debtor-member of a multi-member limited liability company.
(b) Except as provided in paragraph VI, the remedy of execution upon a debtor-member's membership rights shall be unavailable to a judgment creditor attempting to satisfy a judgment against a debtor-member of a single-member limited liability company.
(a) If a judgment creditor shows to the satisfaction of a court of competent jurisdiction that distributions under a charging order in respect of the limited liability company interest of a debtor-member of a single-member limited liability company will not satisfy the judgment within a reasonable time, a charging order shall not be the sole and exclusive remedy by which the judgment creditor may satisfy the judgment against the member.
(b) Upon such a showing, the court may order the sale of the debtor-member's membership rights under an execution sale.
(c) A judgment creditor may make a showing to the court under subparagraph (a) that distributions under a charging order will not satisfy a judgment either (1) when the judgment creditor applies for the entry of a charging order under a member of a single-member limited liability company or (2) at any time thereafter.
VII. If, under paragraph VI, a court orders an execution sale of the membership rights of a debtor-member that is the member of a single-member limited liability company:
(a) The purchaser shall obtain all of the member's membership rights and not merely the rights of an transferee;
(b) The purchaser shall become the member of the limited liability company; and
(c) The debtor-member whose membership rights have been sold shall cease to be a member.
VIII. Nothing in this section shall limit:
(a) The rights of a creditor that has been granted a consensual security interest in the limited liability company interest or other membership rights of a member to pursue the remedies available to the secured creditor under other law applicable to secured creditors;
(b) The principles of law and equity which affect fraudulent transfers;
(c) The availability of the equitable principles of veil-piercing, equitable lien, or constructive trust, or other equitable principles not inconsistent with this section; or
(d) The continuing jurisdiction of the court to enforce its charging order in a manner consistent with this section.
IX. In any action in a court of this state in which a judgment creditor seeks a charging order against a member or transferee of a foreign limited liability company, this section shall apply.
by Jay Adkisson
2020.06.20 ... Payment Of Distributions Directly To Creditor Holding A Charging Order Deemed Appropriate In BMO Case
2020.04.30 ... Charging Order Denied For Lack Of Proof Of The Debtor's Interest In Dhillon
2020.02.29 ... Florida Charging Order Requires Distributions To Be Re-Directed To The Creditor In Kostoglou
More Articles On Charging Orders click here
LAW REVIEW ARTICLES
by Jay Adkisson
For more on the historical background of Charging Orders and contemporary issues involving the same, see Jay Adkisson's article, Charging Orders: The Peculiar Mechanism, 61 South Dakota Law Review 440 (2016). Available at SSRN: https://ssrn.com/abstract=2928487
Analysis of Uniform Limited Liability Company Act Sections re Charging Orders
The Uniform Acts re Charging Orders and Transferable Interests (without Jay's comments):
Effect of Bankruptcy On The Debtor-Member's LLC Interest here
Collected Court Opinions On Charging Orders here and below
NATURE OF REMEDY
Distributions/Economic Rights - Creditors rights to distributional interests/economic rights
Prejudgment Relief - Freezing the interest and distributions pending judgment
Procedure - The procedure for obtaining a charging order and ancillary provisions
Unknown Interest - Where the debtor's interest, if any, has not been ascertained
Order Form Generally - Most issues to the form of the charging order
Order Form Future Interests - How the charging order affects subsequently-acquired interests
Exemptions - Available state and federal protections that may apply to charging orders
Conflicts-Of-Law - Determining which state's laws apply to a charging order dispute
Jurisdiction - Issues relating to the court's authority over out-of-state debtors and LLCs
Foreign Entities - Charging orders against out-of-state entities
Creditor Rights Restrictions - Limitations on creditors' management and informational rights
Information Rights - Creditors' ability to access information about the LLC
Management & Voting Rights - Rights of creditor after charging order issued
LIEN EFFECT AND PRIORITY
Lien - The lien effect of a charging order and priority issues
Compliance - Issues for the LLC and non-debtor members in complying with a charging order
Receiver - The role of the receiver in charging order proceedings
SINGLE MEMBER LLC
Single-Member LLCs - Enforcing the judgment against an LLC with a sole member
Foreclosure - Liquidation by judicial sale of the debtor's right to distributions
REPURCHASE AND REDEMPTION RIGHTS
Repurchase/Redemption Rights - Third-parties' ability to purchase the charged interest
Appeal - Issues relating to the appeal of a charging order
RELATION TO OTHER REMEDIES
Exclusivity - The charging order as the sole remedy available to creditors and exceptions
Voidable Transactions/Fraudulent Transfers - Issues relating to avoidable transfers of interests
Bankruptcy - Treatment of the debtor/member's interest in bankruptcy
Intra-Member Disputes - Where one member obtains a charging order against another
Taxes - Tax issues relating to charging orders for all involved parties
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Additional Court Opinions About charging orders (unsorted)
THE CHARGING ORDERS PRACTICE GUIDE
The Charging Order Practice Guide: Understanding Judgment Creditor Rights Against LLC Members, by Jay D. Adkisson (2018), published by the LLCs, Partnerships and Unincorporated Entities Committee of the Business Law Section of the American Bar Association, click here for more
Available for purchase directly from the ABA at https://goo.gl/faZzY6
Also available from Amazon at https://www.amazon.com/Charging-Orders-Practice-Guide-Understanding/dp/1641052643
OTHER INFORMATIONAL WEBSITES
by Jay Adkisson
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© 2020 Jay D. Adkisson. All Rights Reserved. No claim to government works or the works of the Uniform Law Commission. The information contained in this website is for general educational purposes only, does not constitute any legal advice or opinion, and should not be relied upon in relation to particular cases. Use this information at your own peril; it is no substitute for the legal advice or opinion of an attorney licensed to practice law in the appropriate jurisdiction. This site is https://chargingorder.com Contact: jay [at] jayad.com or by phone to 702-953-9617 or by fax to 877-698-0678.