Archive for the ‘Legislation & Regulations’ Category

Delaware, Charging Orders and SMLLCs

Friday, May 10th, 2013

House Bill No. 126, introduced in the Delaware legislature on May 9, 2013, would make two amendments to the Delaware LLC Act that would affect the rights of creditors. First, Section 6 of the Bill would Section 18-703(d) of the Delaware LLC Act to read as follows:

(d) The entry of a charging order is the exclusive remedy by which a judgment creditor of a member or a member’s assignee may satisfy a judgment out of the judgment debtor’s limited liability company interest and attachment, garnishment, foreclosure or other legal or equitable remedies are not available to the judgment creditor, whether the limited liability company has 1 member or more than 1 member.

House Bill No. 126, 147th Leg., § 6 (Del. May 9, 2012)(underlining in original, italics added). Second, Section 7 of the Bill would amend § 18-1101 of the Delaware LLC Act by inserting a new sub-paragraph (j), to read :

(j) The provisions of this chapter shall apply whether a limited liability company has 1 member or more than 1 member.

Id. at § 7 (underlining in original).

The first part of the amendment to § 18-703(d) elaborates on what “exclusive remedy” means. Among other things, it seems intened to avoid the result in cases such as would avoid the result, in cases such as Hotel 71 Mezz. Lender LLC v. Falor, 2010 NY Slip Op 01348, 14 NY3d at 307, 926 N.E.2d 1202 (2010) (slip Op.) and Olmstead v. Federal Trade Commission, 44 So. 3d 76 (Fla. 2010)(slip Op.), in which courts held that general creditors remedies, such as attachment (Falor) and levy and execution (Olmstead), can be used to reach interests in LLCs.

The second part of the amendment to §18-703(d), and new 18-1101(j) is aimed at the result, in cases such as Olmstead, and In re Albright, 291 B.R. 538 (Bankr. D. Colo. 2003), that allow a transferee of the interest of the sole member in a single-member LLC (SMLLC) to succeed to both the economic and the management rights of the member. With the SMLLC amendments, Delaware joins the race-to-the-bottom for the state most-friendly to the use of SMLLCs for asset p;rotection.

Gary Rosin

Delaware Default Fiduciary Fix

Friday, May 10th, 2013

In its per curiam opinion in Gatz Properties, LLC v. Auriga Capital Corporation, 59 A.3d 1223 (Del. 2012)(en banc) (slip opinion), the Delaware Supreme Court called on the Delaware legislature to settle the questions of whether, when the LLC agreement is silent, those involved with LLCs owe fiduciary duties. See Gary Rosin, Gatz Properties, LLC. v. Auriga Capital Corp. (Del. 2012): Strine Affirmed on other Grounds and Chastised (Nov. 8, 2012).

Proposed legislation has been working its way through the Delaware State Bar Association. On May 9, 2012, the result, House Bill No. 126, was introduced in current Delaware legislative session. Section 8 of the bill provides:

Section 8. Amend § 18-1104, Title 6 of the Delaware Code by making insertions as shown by underlining as follows:

In any case not provided for in this chapter, the rules of law and equity, including the rules of law and equity relating to fiduciary duties and the law merchant, shall govern.

As noted by Doug Batey, Uncertainty Over Delaware LLC Fiduciary Duties To Be Clarified (April 16, 2013), the bill implicitly endorses the reasoning of Chancellor Stine in Auriga Capital Corp. v. Gatz Properties, LLC, 40 A.3d 839 (Del. Ch. 2012) (slip op.) that fiduciary duties are rooted in equity.

As a side note, in his opinion in Feeley v. NHAOCG, LLC, C.A. No. 7304-VCL (Nov. 28, 2012)(slip op.), Vice Chancellor Laster noted that , in Gatz Properties, LLC, the Delaware Supreme Court had left open the question of default fiduciary duties, and had Chancellor for even discussing the question. Laster then treated Strine’s opinion as if it were a law review article, slip op, at 16-17, and adopted Strine’s reasoning. Feeley , slip op. at 14-22. Laster’s opinion also has a nice discussion of the introductory phrase to Del. Sec. 18-1101(c), which allows contracting out of fiduciary duties:

To the extent that, at law or in equity, a member or manager or other person has duties (including fiduciary duties),

As explained by the Vice Chancellor, whether a member, or some other person, owes fiduciary duties is context specific. For example, in a manager-managed LLC, a non-controlling member does not owe fiduciary duties. Likewise, a person who is not a manager or a member might assume fiduciary duties by becoming and office or agent of the LLC. Feeley, slip op. at 18-21.

Gary Rosin



EIRLs: France Adopts Limited Liabiity Sole Propreitorship

Monday, March 7th, 2011

Last year, France adopted legislation allowing sole proprietors to form an EIRL–“Entrepreneur individuel à responsabilité limitée”.   LOI n° 2010-658 du 15 juin 2010 relative à l’entrepreneur individuel à responsabilité limitée.  From my little-used college French, and the literal Google ® translation, the law requires a public filing of a Declaration of Trust identifying assets–and their values–dedicated to the business, as well as annual reports. 

My correspondent, Tadas Klimas, from Lithuania, also sends along this link to the Google ® translation of a post discussing EIRLs on Themis, “le blog sur la justice, la loi et l’équité” (original post).

For a law establishing a new unincorporated business entity, the EIRL law is astonishingly brief.  The law limits post-filing creditors of the business to declared business assets, but I couldn’t find anything about limiting distributions to, or the rights of personal creditors of, the sole proprietor.

As Grace Potter of Grace Potter and the Nocturnals sings, “If I were from Paris / I would say / Oooh la la la la la la.”

posted by Gary Rosin

The New Uniform Limited Cooperative Association Act

Monday, September 28th, 2009

Contributing editor Thomas E. Geu (South Dakota) and co-author James B. Dean have a new article, The New Uniform Limited Cooperative Association Act:  A Capital Idea For Principled Self-Help Value Added Firms, Community-Based Economic Development, And Low-Profit Joint Ventures,  44 Real Prop. Tr. & Est. L.J. 55 (2009).

Gary Rosin