LLC CHARGING ORDERS
Read the
WARNING! first.
In Arizona, the sole remedy
by which a judgment-creditor of a member of a Limited Liability Company
("LLC") may satisfy a judgment out of the judgment-debtor's interest in
the LLC is the "charging order."
A charging order is an
order made by the Court that "charges" the object with payment of the
judgment debt. A charging order is a term from the English practice
for a court order subjecting the stock or funds of a public company,
belonging to the judgment-debtor, to the satisfaction of a judgment.
See, Ballentine's Law Dictionary (3rd Ed.).
In Arizona, neither the
charged interest of a debtor-LLC member nor specific assets of the LLC may
be sold by a judgment-creditor of a debtor-LLC member. Instead, the
judgment-creditor has only the rights of an assignee of the member's
interest.
While there is no Arizona
appellate opinion directly on point, the language of the statute is clear.
And, the Arizona Supreme Court opinion in Bohonus v. Amerco, 124
Ariz. 88, 602 P.2d 469 (1979), held that a charging order does not permit
the sale of specific partnership property.
The assignment of an
interest in an LLC does not dissolve the LLC or entitle the assignee to
participate in the management of the business and affairs of the LLC or to
become or to exercise the rights of a
member, unless the assignee is admitted as a member as provided by the
terms of the LLC's operating agreement or, if an operating agreement does
not so provide, on the approval or consent of all members.
An assignee that has not
become a member is only entitled to receive, to the extent assigned, the
share of distributions, including distributions representing the return of
contributions, and the allocation of profits and losses, to which the
assignor would otherwise be entitled with respect to the assigned
interest.
The Arizona statute that
provides for charging orders on LLC membership interests is Arizona
Revised Statutes, Section 29-655, which states:
|
29-655. Rights of
judgment creditors of a member
A. On application to a
court of competent jurisdiction by any judgment creditor of a member,
the court may charge the member's interest in the limited liability
company with payment of the unsatisfied amount of the judgment plus
interest. To the extent so charged, the judgment creditor has only the
rights of an assignee of the member's interest.
B. This chapter does
not deprive any member of the benefit of any exemption laws applicable
to his interest in the limited liability company.
C. This section
provides the exclusive remedy by which a judgment creditor of a member
may satisfy a judgment out of the judgment debtor's interest in the
limited liability company. |
The Arizona statute that
declares the rights of assignees of members of an LLC is Arizona Revised
Statutes, Section 29-732, which states:
|
29-732. Interest in
limited liability company; transferability of interest; rights of
assignees
A. An interest in a
limited liability company is personal property and, except as provided
in an operating agreement or article 11 of this chapter, may be
assigned in whole or in part. The assignment of an interest in a
limited liability company does not dissolve the limited liability
company or entitle the assignee to participate in the management of
the business and affairs of the limited liability company or to become
or to exercise the rights of a member, unless the assignee is admitted
as a member as provided in section 29-731. An assignee that has not
become a member is only entitled to receive, to the extent assigned,
the share of distributions, including distributions representing the
return of contributions, and the allocation of profits and losses, to
which the assignor would otherwise be entitled with respect to the
assigned interest.
B. An assignee who has
become a member has the rights and powers to the extent assigned and
is subject to the restrictions and liabilities of a member under the
articles of organization, an operating agreement and this chapter. An
assignee who becomes a member is also liable for any obligations of
his assignor to make capital contributions.
C. Unless otherwise
provided in an operating agreement, a member who has assigned all or
part of his interest in a limited liability company is not released
from his liability to the limited liability company under this chapter
without the written consent of all members whether or not the assignee
becomes a member. A member who has assigned all of his interest in a
limited liability company remains a member until the admission of the
assignee as a member unless otherwise provided in an operating
agreement. |
If you need assistance with
an Arizona charging order or Limited Liability Company,
contact us at 928/445-3230. |
