Creditors of LLC Members Have Expanded Remedies

by | Sep 8, 2010 | Business Services

The Florida Supreme Court recently issued an advisory opinion on the ability of creditors to reach the debtor’s entire interest in a single member limited liability company, commonly referred to as an LLC. The opinion interprets the Florida LLC statute in a way that subjects a sole member of single member LLC to remedies previously not thought available to creditors. The court held in Olmstead v. FTC that “a court may order a judgment debtor to surrender all right, title, and interest in the debtor’s single member LLC to satisfy an outstanding judgment,” and need not limit the remedy to a charging order.

The court focused on the ability of the single member to freely transfer the LLC interest without the need to seek consent from non-existing other members. Because the single member’s interest is not subject to the restrictions on or requirements for transfer common in multimember LLCs, a charging order is not the exclusive remedy. The court also noted that the language of the Florida statute failed to limit the creditor to the charging order as an exclusive remedy in the same manner that legislation under the Florida partnership and limited partnership legislation limited the remedy.

The Indiana LLC statute also does not specify that a charging order is the creditor’s exclusive remedy against a member, which also subjects our LLCs to a similar statutory attack. (Notably, neither the Indiana partnership nor limited partnership legislation contains the exclusive remedy language.) We will be following how the Olmstead decision is used in Indiana. If you have questions about how this affects your limited liability company, contact one of our Business and Personal Services Practice Group lawyers.

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More about Burke Costanza & Carberry LLP