Source: https://protectedseriesact.com/section-608---post-merger-creditor-rights---uniform-protected-series-act-upsa.php
Timestamp: 2019-09-17 16:16:20
Document Index: 422204940

Matched Legal Cases: ['§ 608', '§ 608', '§ 608', '§ 404', '§ 608', '§ 608', '§ 608', '§ 404']

Section 608 - Post-Merger Creditor Rights - Uniform Protected Series Act UPSA
(a) A creditor's right that existed under Section 404 immediately before a merger under Section 604 may be enforced after the merger in accordance with the following rules:
(1) A creditor's right that existed immediately before the merger against the surviving company, a continuing protected series, or a relocated protected series continues without change after the merger.
JayNote: Under § 608(a)(1), if a creditor had a right against either a continuing protected series or a relocated protected series prior to the merger, that right doesn't change after the merger.
(2) A creditor's right that existed immediately before the merger against a non-surviving company:
(A) may be asserted against an asset of the non-surviving company which vested in the surviving company as a result of the merger; and
JayNote: What if, prior to the merger, a creditor had a right against the LLC that was terminated as part of the merger? In that event, the creditor can satisfy its right against whatever property of that LLC which passed to the surviving company under § 608(a)(2).
(3) Subject to subsection (b), the following rules apply:
JayNote: Paragraph (a)(3) of § 608 is confusing in the extreme even to somebody who thinks they might otherwise sort of understand this stuff.
(A) In addition to the remedy stated in paragraph (1), a creditor with a right under Section 404 which existed immediately before the merger against a non-surviving company or a relocated protected series may assert the right against:
(i) an asset of the surviving company, other than an asset of the non-surviving company which vested in the surviving company as a result of the merger;
(iv) if the creditor's right was against an asset of the non-surviving company, an asset of a relocated series; or
(v) if the creditor's right was against an asset of a relocated protected series, an asset of another relocated protected series.
JayNote: Section 608(a)(3)(A) relates to a creditor who, prior to the merger, had a right against an unassociated asset (per § 404) of either the non-surviving company or a relocated protected series of that non-surviving company. In that case, with some limitations, the creditor can enforce the right against an asset of the surviving company or any of its continuing or relocated protected series. Note that this only relates to unassociated assets; if a creditor had a right against an associated asset, then that right would follow the asset to whatever protected series made it through the merger under § 608(a)(1).
(B) In addition to the remedy stated in paragraph (2), a creditor with a right that existed immediately before the merger against the surviving company or a continuing protected series may assert the right against:
(ii) an asset of a non-surviving company which vested in the surviving company as a result of the merger.
JayNote: Section 608(a)(3)(B) relates to a creditor who, prior to the merger, had a right against the surviving company or one of its protected series that survived the merger. In that case, the creditor can enforce the right against either an asset of a relocated protected series or an asset of the surviving company which had vested in that company from the non-surviving company. Unlike (3)(A), (3)(B) is not restricted to unassociated assets.
(b) For the purposes of subsection (a)(3) and Section 404(b)(1)(A), (2)(A), and (3)(A), the incurrence date is deemed be the date on which the merger becomes effective.
JayNote: The testing date for the creditor's rights is the date of the merger, per § 608(b).
(c) A merger under Section 604 does not affect the manner in which Section 404 applies to a liability incurred after the merger.
JayNote: Per § 608)(c), a creditor's rights against an unassociated asset (under § 404) is not affected by the merger so long as the liability to the creditor was incurred after the merger, i.e., the merger doesn't affect post-merger liabilities.
Reporter's Comment to Section 608
As explained in the comment to Section 404, ordinarily the transfer of an asset ends any preexisting Section 404 exposure applicable to the asset. As a result, it is necessary to protect against a merger under Section 604 being used solely or essentially to extinguish preexisting Section 404 exposure. Section 608 inhibits such misuse in three ways.
First, the section preserves preexisting exposure to the extent practicable: As to:
any asset owned by the surviving limited liability company or a continuing or relocated protected series, Section 604(a)(1) expressly preserves preexisting Section 404 exposure; and
any asset owned by a non-surviving series limited liability company and vested in the surviving company as a result of the merger, Section 608(a)(2) causes any preexisting exposure to "run with" the asset and apply to the asset as if the vesting had not occurred – i.e., if the non-surviving company owned the asset at the incurrence date, for the purposes of Section 404(b)(2) the surviving company is treated as if it owned the asset on that date.
Second, with one major caveat, under Section 608(a)(3)(A) a creditor with a preexisting Section 404 claim against a non-surviving limited liability company or a relocated protected series may assert the claim against any asset owned by the surviving limited liability company or any protected series of the surviving company.
Third, with the same major caveat, under Section 608(a)(3)(B), a creditor with a preexisting Section 404 claim against an asset of the surviving limited liability company or a continuing protected series of the company may assert the claim against an asset of a relocated protected series or an asset of the non-surviving company that vested as a result of the merger in the surviving limited liability company.
The major caveat: For purposes of Section 608(a)(3)(A) and (B), the incurrence date is deemed to be the effective date of the merger. In consequence, due diligence for a surviving limited liability company in a merger under Section 604 includes checking the adequacy of Section 301 recordkeeping for any asset that after the merger will be owned by the surviving company or any relocated or continuing protected series of the company as well as by any protected series created in the merger.
For the definition of "incurrence date", see Section 404(a)(2).