LLC CHARGING ORDERS

In Arizona, the sole remedy to satisfy a judgment out of a judgment debtor’s membership interest in a Limited Liability Company (“LLC”) is the “charging order.”  Prescott AZ lawyers

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.