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