Assignment Of Membership Interest

Assignment Of Membership Interest-51
In these difficult economic times, debtors have become more creative in proposing additional or substitute sources of collateral to secure a debt or obtain a forbearance or loan modification.

In these difficult economic times, debtors have become more creative in proposing additional or substitute sources of collateral to secure a debt or obtain a forbearance or loan modification.

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, lenders considering accepting a collateral assignment of an entity interest should keep a few things in mind for due diligence and drafting purposes.

First, where a debtor has interests in multiple related entities, have the debtor provide an organizational chart.

Key provisions include transfer or assignment rights or restrictions and default and dissolution provisions.

If the organizational agreement expressly permits assignment, then the limitations under the LLC Law and the Partnership Acts do not apply.

The creditor sought a court order to compel the debtor to transfer its ownership interest in the LLCs so those interests could be sold at sheriff’s sale. Because of this protection of an LLC’s “close-knit structure,” the Superior Court decided that a judgment creditor can secure a debtor’s economic rights to distributions and return of contributions from the LLC, but cannot obtain the debtor’s governance rights to vote and participate in managing the LLC.

After much procedural wrangling in both state and bankruptcy court, the case ended up in the Superior Court, which looked to Pennsylvania’s Limited Liability Company Law, 15 Pa. The Superior Court equated this remedy of obtaining the economic rights in an LLC interest to the “charging order” that is permitted against a partnership interest under Pennsylvania’s Uniform Partnership and Limited Partnership Acts (“Partnership Acts”).W.2d 823, 833 (Iowa 1998), the court held that duties or liabilities under the contract were not assigned but delegated.The terms assignment and delegation can be used interchangeably when not dealing with the consequences.[v] The consequences of assignment and delegation are different. (b) A charging order constitutes a lien on the judgment debtor’s limited liability company interest. However, the assignee is not obligated for liabilities, including the obligations of the assignor to make contributions as provided in § 18-502 of this title, unknown to the assignee at the time the assignee became a member and which could not be ascertained from a limited liability company agreement. To the extent so charged, the judgment creditor has only the right to receive any distribution or distributions to which the judgment debtor would otherwise have been entitled in respect of such limited liability company interest. Notwithstanding the foregoing, unless otherwise provided in a limited liability company agreement, an assignee who becomes a member is liable for the obligations of the assignor to make contributions as provided in § 18-502 of this title, but shall not be liable for the obligations of the assignor under subchapter VI of this chapter. The consequences of assignment include: However, where both rights and duties are transferred, then the transaction can be deemed an “assignment” of the contract. As real estate values have plummeted, alternatives have become more attractive, including an assignment of the debtor’s interest in an operating entity with good cash flow. The Superior Court focused on a provision in the LLC Law that prohibits a transferee of an LLC interest from becoming a member or participating in the company’s management without the approval of all other LLC members.A limited liability company shall not have the power to issue a certificate of limited liability company interest in bearer form. (d) Unless otherwise provided in a limited liability company agreement and except to the extent assumed by agreement, until an assignee of a limited liability company interest becomes a member, the assignee shall have no liability as a member solely as a result of the assignment. (a) An assignee of a limited liability company interest becomes a member: (1) As provided in the limited liability company agreement; (2) Unless otherwise provided in the limited liability company agreement, upon the vote or consent of all of the members of the limited liability company; or (3) Unless otherwise provided in the limited liability company agreement by a specific reference to this subsection or otherwise provided in connection with the assignment, upon the voluntary assignment by the sole member of the limited liability company of all of the limited liability company interests in the limited liability company to a single assignee. If a member is a corporation, trust or other entity and is dissolved or terminated, the powers of that member may be exercised by its personal representative. 74, § 6.; § 18-704 Right of assignee to become member. If a member who is an individual dies or a court of competent jurisdiction adjudges the member to be incompetent to manage the member’s person or property, the member’s personal representative may exercise all of the member’s rights for the purpose of settling the member’s estate or administering the member’s property, including any power under a limited liability company agreement of an assignee to become a member.

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