LLC charging orders and their priority

Iowa Commercial Litigation Dickinson Law Firm Des Moines, Iowa

Posted on 08/29/2010 at 12:48 PM by The Newsroom

As readers of this blog should know, a charging order is the exclusive remedy with regard to a debtor's membership interest in an LLC.  This is true even if a creditor has a security agreement signed by the debtor that assigns all right, title and interest in a membership interest in an LLC to the creditor (courts have found that absent the consents required by the operating agreement the assignment is ineffective). This does not mean that creditors can’t take steps to improve their position with respect to claims they have on an LLC membership interest. In First Mid-Illinois Bank & Trust v. Parker, 2010 WL 3179734 (Ill. App. 2010) Bank A argued that its charging order should take priority over Bank B’s charging order even though Bank B’s charging order was entered first because Bank A had an attachment lien entered four months earlier. The court agreed finding that because the charging order and attachment lien of Bank A related to the same claim the attachment merged with the charging order and the charging order related back to the date of the earlier attachment filing based on the “relation back” doctrine. 

The material in this blog is not intended, nor should it be construed or relied upon, as legal advice. Please consult with an attorney if specific legal information is needed.

Categories: Commercial Litigation

 

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