Foreclosure and Sale of Membership/Ownership in a LLC
After a recent appellate court decision, it is clear that there are more liability protections for owners/members of a limited liability company (“LLC”). The “new” protection is indirect. Generally, the owners of a LLC are shielded form the debts and liabilities of a LLC. If, however, an individual has a personal judgment against him/her (even one completely unrelated to involvement in the LLC), the judgment creditor may obtain a charging order. A charging order allows a judgment creditor of an individual owner to enforce the judgment by “charging” the individual member’s cash distributional interests with the unsatisfied amount of a judgment. In essence, the creditor steps into the shoes of the debtor-owner and receives his/her cash distributions from the LLC.
What was previously unclear was whether a judgment creditor could foreclose on an owner’s interest in a LLC by forcing a sale of the ownership and receiving the proceeds. A foreclosure and court ordered sale of an ownership interest is not expressly contemplated in the Missouri LLC Act. Interestingly, it is expressly authorized under the corresponding statutes for partnerships. When courts interpret statutes, there are two important guides for construction that are often utilized. First, Courts “may not engraft upon [a] statute provisions which do not appear in explicit words or by implication from other words in the statute.” State v. Collins, 328 S.W.3d 705, 709 n.6 (Mo. 2011). Second, “[i]f a phrase or term is included in one section of a statute but the same language is omitted from another, [courts] presume that the disparate language was enacted purposefully.” Anani v. Greip, 406 S.W.3d 479, 482 (Mo. Ct. App. 2013). Based on these two principles, the eastern district appellate court concluded that the LLC act does not authorize foreclosure of an ownership interest. As of this writing, it remains to be seen whether the legislature will react and change the law or whether another Missouri Court will augment/modify this ruling.
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