Charging Order Adkisson's CHARGING ORDERS The Creditor's Remedy Against A Debtor's Interest In An LLC Or Partnership Home Charging Order Statutes Of The United States What Is A Charging Order? A Charging Order is a statutory remedy available to some degree or another in all states which allow a creditor of a member (in the case of an limited liability company) or a partner (in the case of a general or limited partnership) to place a lien on that member's or partner's rights to distributions, so as to intercept any payments that would otherwise be made to the member or partner by the entity. [Charging Orders are also occasionally found in a few states as, essentially, a method of garnishment in (it seems) predominantly family law cases, but this website does not consider that varietal and no more will be said about them.] The Charging Order did not exist at common law, and was not imported into the American common law. Instead, Charging Orders are authorized by the state laws relating to partnerships and LLCs, and almost always meaning some version of the Uniform Partnership Act ("UPA", phonetic "Ooh-pah"), the Uniform Limited Partnership Act ("ULPA", phonetic "Uhl-pah"), and the Uniform Limited Liability Company Act ("ULLCA", phonetic "Uhl-kah"). All of these uniform acts were drafted and approved by the Uniform Law Commission, which is comprised of state commissioners appointed by the governor of each state, and then promulgated to the states via legislative liasons for enactment. Together, the UPA, ULPA, and ULLCA are known as the "Harmonized Acts" due to a harmonization project by the Uniform Law Commission ("ULC), completed in 2013, that was intended to (and did in substantial part) make these acts nearly alike in the language used for their key aspects. The process of harmonization and the inherent desire for uniform acts to be, well, uniform, has generally been respected by the states; however, some states have substantially tinkered with both the language and substantive effect of the Harmonized Acts as they related to charging orders. For example, some states have eliminated the ability of a creditor to foreclose on a charging order, which creates the potential for certain benefits and problems (mostly problems) in those states. The point here is that this website considers Charging Orders under the Uniform Law Commission version of the Harmonized Acts, but the charging order provisions of the Harmonized Acts may have been modified or changed by particular states. Thus, practitioners should caution variances in their state's acts, or in the acts of other states that might apply in a conflict of law situation. This is a principle reason why nothing in this website should be taken as legal advice or opinion, nor should be presumed to apply as state in a given state. Practitioners must understand the Harmonized Acts, their acts of the states that they are dealing with, and note the differences (if any) and their effect. A further caution is that only one state, being California, has taken the time to coordinate their post-judgment procedural regime with the Harmonized Acts. The result of this wholesale failure of the state legislatures (due largely to the strange lack of guidance provided on the subject by the Uniform Law Commission) is that in all states but California the courts must come up with ad hoc procedures to implement the Charging Order provisions of the Uniform Acts. To say that this is an unfortunate state of affairs and has caused considerable confusion among the courts and litigants would be a vast understatement. It Doesn't Have To Be This Difficult The Charging Order remedy is an anachronism that exists because of (1) a divergence of English remedy law, which requires that a "charging order" effect an attachment of the debtor's property, and American remedy law, which normally allows a creditor to simply place a lien on that property, and (2) the Charging Order provision of the English Partnership Act was (apparently) thoughtlessly copied into the original Uniform Partnership Act of 1914 -- and been just as thoughtlessly carried over into the revisions of that act, as well as the ULPA and ULLCA, ever since. There really is no good reason why a creditor should not just be able to provide a copy of the judgment to the entity, or file a copy of the judgment with the Secretary of State's office in the entity's jurisdiction of formation, and thereby automatically create a lien on the debtor's interest. Unfortunately, the Charging Order has taken on a life of its own, mostly spurred as a misuse for asset protection purposes, and so persists as an anomaly, a "peculiar mechanism" as one court put it, or what I would call a statutory bastard of American law. But it is what it is, and we have to deal with the law as it is instead of (for the time being at least) what we desire it to be. Enjoy. Dive right into it, go to ULLCA § 503 which starts it all. RECENT ARTICLES by Jay Adkisson 2021.09.30 ... Charging Order Interstate Jurisdictional Issues In Oberg 2021.09.20 ... Statutory Authority For Charging Order Against Professional Association Addressed In Berns Custom Homes 2021.08.30 ... Charging Order Jurisdictional Issues In O’Neal 2021.07.30 ... U.S. District Judge Employs Common Sense To Overrule Glitch In Charging Order Statute In Brogdon 2021.06.17 ... Delaware Chancery Court Navigates Around Charging Order Exclusivity And Recognizes Reverse Veil-Piercing 2021.03.30 ... Some Random Musings About Single-Member LLCs Versus Multiple-Member LLCs 2021.03.27 ... Collateral Attack On Charging Order Via Federal Court Fails In Kerr ______________ 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 About Jay Adkisson and this website Articles About Charging Orders Analysis of Uniform Limited Liability Company Act Sections re Charging Orders Charging Orders (Section 503) contains the general charging order provisions. Foreclosure of Charging Order Liens (503(c-e)) deals with foreclosure generally of an interest subject to a charging order lien. Foreclosure re Single-Member LLC (503(f)) is the special case of foreclosure of an LLC with only one member. 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): Uniform Limited Liability Company Act, Article V ("ULLCA" and "RULLCA"). Uniform Partnership Act, Article V - ("UPA" and "RUPA") Uniform Limited Partnership Act, Article VII - ("ULPA" and "RULPA") 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 Entities - The types of legal entities amenable to charging orders, or not 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 Abstention - Collateral attacks on charging orders in federal court 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 Abstention - Attempts to collaterally attack the charging order in federal court 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 = = = = = List Of Court Opinion Sections 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. Anti-SLAPP Laws - A collection of and commentary about Anti-SLAPP laws and significant court decisions on the subject within the United States, and special focus on the California Anti-SLAPP law. Captive Insurance - Licensed insurance companies formed by the parent organization to handle the insurance and risk management needs of the business. Contact Jay Adkisson: Las Vegas Office: 6671 S. Las Vegas Blvd., Suite 210, Las Vegas, NV 89119, Ph: 702-953-9617, Fax: 877-698-0678. By appointment only. Newport Beach Office: 100 Bayview Circle, Suite 210, Newport Beach, California 92660. Ph: 949-200-7773, Fax: 877-698-0678. By appointment only. Phone: 702-953-9617 E:Mail: jay [at] jayad.com Unless a dire emergency, please send me an e-mail first in lieu of calling to set up a telephone appointment for a date and time certain. Social Media Contact: Twitter and LinkedIn Admitted to practice law in Arizona, California, Nevada, Oklahoma and Texas. Jay is a Managing Partner of Adkisson Pitet LLP. © 2021 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.