McBride Law Blog

Charging Orders: Is a Creditor of an LLC Member Necessarily a Creditor of the LLC? (Part I)

McBride Law Blog

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In our previous blog series on Comparison of LLC Statutes, we briefly touched on the concept of LLC charging order.  In many states, including Delaware, New York, and Texas, a creditor with a judgment against an LLC member can apply for a charging order to satisfy the judgment.  That way, the creditor gets the right to receive distributions from the LLC to which the debtor/member would otherwise have been entitled.  A charging order may or may not be the exclusive remedy by which a creditor may satisfy a judgment out of the debtor’s LLC interest, depending on the jurisdiction, and this can make a big difference if the LLC does not make any distributions.

In another blog series titled LLC Owners, If You Owe Someone Money, Your Ownership of an LLC Might Not Be Protected: When It Comes to Single-Member LLCs, Charging Order May Not Be the Exclusive Remedy, we delved a little deeper.  We explained that the purpose of a charging order is to protect other members of an LLC from having to accept the creditor of another member–someone they did not choose–as a co-member or co-manager.  We then looked at cases involving single-member LLCs in the context of bankruptcy and discussed how different state courts and legislatures dealt with the issue when there are no other members to protect.

Another case in which charging orders were at issue recently surfaced.  In Merrill Ranch Properties, LLC v. Austell,[1] the Court of Appeals of Georgia held, among other things, that a charging order against an LLC does not make the creditor of the debtor/member a creditor of the LLC.  In our next post, we will discuss the details of the case.

This post was part of a two-part series on LLC charging order.  You can find the other post by searching our blogs at www.mcbrideattorneys.com.

This posting is intended to be a planning tool to familiarize readers with some of the high-level issues discussed herein.  This is not meant to be a comprehensive discussion and additional details should be discussed with your transaction planners including attorneys, accountants, consultants, bankers and other business planners who can provide advice for your circumstances.  This article should not be treated as legal advice to any person or entity.

Steps have been taken to verify the contents of this article prior to publication.  However, readers should not, and may not, rely on this article.  Please consult with counsel to verify all contents and do not rely solely on this article in planning your legal transactions.

[1] Merrill Ranch Props., LLC v. Austell, A15A2313 (Ga. App. Mar. 28, 2016).

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