Opinions Unknown Interest Charging Order

 

Adkisson's

CHARGING ORDERS

The Creditor's Remedy Against A Debtor's Interest In An LLC Or Partnership

Unknown Or Uncertain Interest Held By Debtor

What if it is unknown what interest the D/M holds in the entity, if indeed the D/M holds any interest at all? This is an issue that has frequently befuddled the courts and has led to disparate results on similar facts.

 

With other assets, the judgment enforcement mechanisms allow a creditor to place a lien without having to ascertain whether the debtor has any interest, or exactly what that interest may be. Thus, for example, the filing of an abstract of judgment with the county recorder will pick up any real property that the debtor owns in the county, if at all, without the creditor having to make prior identification of it. If the debtor has not real property in the county, then the lien will simply have no effect: No harm, no foul. Allowing a creditor to place liens without knowing if they will attach to any property is completely consistent with the protective effect of liens.

 

Notably, this is also true with levies: A creditor may obtain a writ of levy directed to Chase Bank without knowing whether the creditor has any accounts there at all, but if the creditor does have accounts they are picked up by the levy.

 

Thus, the Harmonized Acts should be amended to provide that it is not necessary for a creditor to establish that the debtor has any interest in the entity, or the amount of the interest, prior to bringing the motion for charging order. If the debtor has no interest in the entity: No harm, no foul.

 

A final problem is that § 503(a) is couched in the discretionary "may enter a charging order" which frequently leads to confusion as to what circumstances may or may not exists that would cause the court to deny the charging order. This "may" should probably be replaced by the mandatory "shall", which would be consistent with other judgment enforcement remedies which are automatically issued by the clerk, i.e., levies and garnishments, etc.

 

Indeed, there is a question of whether the motion itself should be required. With other judgment enforcement remedies, the clerk simply issues the appropriate Writ, and then there is a hearing only if either the debtor or a third-party has a problem with the relief sought, i.e., the debtor asserts a claim of exemption, or a bank asserts a priority lien on funds of the debtor.

 

 

UNKNOWN OR UNCERTAIN INTEREST HELD BY DEBTOR

 

Perez v. Dhillon, 2020 WL 1900447 (E.D.Cal., April 17, 2020).

435 Elm Investment, LLC v. CBD Investments LP I  , 2020 Ohio 943, 2020 WL 1230320 (Ohio App., March 13, 2020).

Regions Bank v. Hyman, 2015 WL 1056302 (M.D.Fla., Mar. 10, 2015).

Arvest Bank v. Byrd, Case No.10-02004 (W.D.Tenn., Aug, 19, 2014).

Safeco Ins. Co. v. Raisch, Case No. C 11-05332 PSG (N.D.Cal., March 20, 2013).

 

RECENT ARTICLES

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

WEBSITE CONTENTS

 

General Information

 

Analysis of Uniform Limited Liability Company Act Sections re Charging Orders

  • Charging Orders (Section 503) contains the general charging order provisions.
  • Transfers of Transferable Interests (Section 502) includes definitions of "transfer" (102(23)), "transferable interests" (102(24)), and "transferees" (102(25)) defines to what the charging order attaches.
  • Definition of Distribution (Section 102(4)) specifies the economic right obtained through a charging order lien and/or foreclosure.

 

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

 

Charging Order Example Sample Form

 

TOPICAL RESEARCH

 

NATURE OF REMEDY

     Distributions/Economic Rights - Creditors rights to distributional interests/economic rights

PREJUDGMENT

     Prejudgment Relief - Freezing the interest and distributions pending judgment

MOTION MECHANICS

     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

INTERSTATE

     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 RESTRICTIONS

     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

     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

     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

     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

SUNDRY OTHER

     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

 

  • Jay Adkisson - More about Jay D. Adkisson, background, books, articles, speaking appearances.

 

  • Creditor-Debtor Law - An overview of judgment enforcement tools and their uses by creditors, and possible defenses by debtors. Related topics include:

 

  • Voidable Transactions - Discussion of the Uniform Voidable Transactions Act (a/k/a 2014 Revision of the Uniform Fraudulent Transfers Act) and fraudulent transfer law in general.

 

  • California Enforcement of Judgments Law - Considers the topic of judgment enforcement in California, including the California Enforcement of Judgments Law and other laws related to California creditor-debtor issues.

 

  • Private Retirement Plans - An exploration of a unique creditor exemption allowed under California law which can be very beneficial but is often misused.

 

  • Protected Series - An examination of the single most complex statutory legal structure yet created, with particular reference to the Uniform Protected Series Act of 2017.

 

  • Asset Protection - The all-time best-selling book on asset protection planning by Jay Adkisson and Chris Riser.

 

 

  • Captive Insurance - Licensed insurance companies formed by the parent organization to handle the insurance and risk management needs of the business.

 

Contact Jay Adkisson:

 

Phone: 702-953-9617     Fax: 877-698-0678     jay [at] jayad.com

 

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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.