AI-assisted research summary: A court may enter a charging order on a member’s or transferee’s transferable interest, and the company must pay affected distributions to the judgment creditor, subject to stated exceptions.
605.0503 Charging order.—(1) On application to a court of competent jurisdiction by a judgment creditor of a member or a transferee, the court may enter a charging order against the transferable interest of the member or transferee for payment of the unsatisfied amount of the judgment with interest. Except as provided in subsection (5), a charging order constitutes a lien upon a judgment debtor’s transferable interest and requires the limited liability company to pay over to the judgment creditor a distribution that would otherwise be paid to the judgment debtor. (2) This chapter does not deprive a member or transferee of the benefit of any exemption law applicable to the transferable interest of the member or transferee. (3) Except as provided in subsections (4) and (5), a charging order is the sole and exclusive remedy by which a judgment creditor of a member or member’s transferee may satisfy a judgment from the judgment debtor’s interest in a limited liability company or rights to distributions from the limited liability company. (4) In the case of a limited liability company that has only one member, if a judgment creditor of a member or member’s transferee establishes to the satisfaction of a court of competent jurisdiction that distributions under a charging order will not satisfy the judgment within a reasonable time, a charging order is not the sole and exclusive remedy by which the judgment creditor may satisfy the judgment against a judgment debtor who is the sole member of a limited liability company or the transferee of the sole member, and upon such showing, the court may order the sale of that interest in the limited liability company pursuant to a foreclosure sale. A judgment creditor may make a showing to the court that distributions under a charging order will not satisfy the judgment within a reasonable time at any time after the entry of the judgment and may do so at the same time that the judgment creditor applies for the entry of a charging order. (5) If a limited liability company has only one member and the court orders a foreclosure sale of a judgment debtor’s interest in the limited liability company or of a charging order lien against the sole member of the limited liability company pursuant to subsection (4):(a) The purchaser at the court-ordered foreclosure sale obtains the member’s entire limited liability company interest, not merely the rights of a transferee; (b) The purchaser at the sale becomes the member of the limited liability company; and (c) The person whose limited liability company interest is sold pursuant to the foreclosure sale or is the subject of the foreclosed charging order ceases to be a member of the limited liability company. (6) In the case of a limited liability company that has more than one member, the remedy of foreclosure on a judgment debtor’s interest in the limited liability company or against rights to distribution from the limited liability company is not available to a judgment creditor attempting to satisfy the judgment and may not be ordered by a court. (7) This section does not limit any of the following:(a) The rights of a creditor who has been granted a consensual security interest in a limited liability company interest to pursue the remedies available to the secured creditor under other law applicable to secured creditors. (b) The principles of law and equity which affect fraudulent transfers. (c) The availability of the equitable principles of alter ego, equitable lien, or constructive trust or other equitable principles not inconsistent with this section. (d) The continuing jurisdiction of the court to enforce its charging order in a manner consistent with this section.