More Texas & Creditors of Owners

We have already noted the preemption of Sections 9.406 & 9.408of the Texas UCC and the elimination of the right to foreclose a charging order on an ownership interest in a Texas LLC.  The rights of creditors of owners of interests in Texas unincorporated business entities (UBEs) under the Texas Business Organizations Code ("TBOC") vary widely, depending on the form of UBE:

  • Ownership interests in all forms of Texas UBEs subject to TBOC–(general) partnerships, limited partnerships and LLCs–are excluded from 9.406 and 9.408 of the Texas Business & Commerce Code.  TBOC §§ 101.106(c) & 154.001(d) (added by Sections 39 and 57 of Senate Bill 1442) (TBOC Chapter 154 is one of two mini-hubs that apply to both (general) partnerships and limited partnerships).
  • TBOC chapter 152, and its predece

ssor statute, deleted the concept of charging orders, as applied to interests in (general) partnerships.  Compare TBOC §§ 152.401-.406 with TBOC §§ 101.108-.112 and TBOC §§ 153.251-.257.  As a result, the traditional remedies–attachment, garnishment, etc.–are available to creditors of owners of interests in (general) partnerships.

  • A charging order is the exclusive remedy for a judgment creditor of an owner to reach an ownership interests in either a limited partnerships or an LLC.  TBOC §§ 101.112 (LLCs) & 153.256 (limited partnerships).
  • Senate Bill 1442 amended TBOC Section 101.112 by adding Subsection (c), which prohibits foreclosure of charging orders on ownership interests in LLCs.  SB 1442, § 40.  [Correction]  A similar change was made to TBOC Section 153.256 (charging orders against ownership interests in limited partnerships).  SB 1442 § 53. [Hat tip to Stephen Paine for reminding me of the dangers of posting when you are tiered!.

    In part, these differences are a matter of path dependence (adoption of new statutes at different times).  I had hoped that the most-recent legislative session might harmonize creditor remedies.  Instead, they beefed up the limited partnership and LLC charging order provisions, and left general partnerships hanging. 

    To paraphrase the old saw, when the legislature is session, you need to lock-up your spouses, children and pets!  That's why we only let them meet for five months every two years!

    posted by Gary Rosin
    (with edits 06/16/2009)

    • This entry was posted on Tuesday, June 16th, 2009 at 3:49 pm and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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