Stricken language would be deleted from and underlined language would be added to present law.
Act 795 of the Regular Session
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State of Arkansas As Engrossed: H2/9/23 S4/4/23 1
94th General Assembly A Bill 2
Regular Session, 2023 HOUSE BILL 1020 3
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By: Representative Maddox 5
By: Senator C. Penzo 6
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For An Act To Be Entitled 8
AN ACT TO AMEND THE UNIFORM LIMITED LIAB ILITY COMPANY 9
ACT; TO REVISE CHARG ING ORDERS UNDER THE UNIFORM 10
LIMITED LIABILITY CO MPANY ACT; AND FOR O THER 11
PURPOSES. 12
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Subtitle 15
TO AMEND THE UNIFORM LIMITED LIABILITY 16
COMPANY ACT; AND TO REVISE CHARGING 17
ORDERS UNDER THE UNIFORM LIMITED 18
LIABILITY COMPANY ACT. 19
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BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF ARKANSAS: 22
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SECTION 1. Arkansas Code § 4 -38-502(a), concerning the transfer of 25
transferable interest under the Uniform Limited Liability Company Act, is 26
amended to read as follows: 27
(a) Subject to § 4-38-503(f), a A transfer, in whole or in part, of a 28
transferable interest: 29
(1) is permissible; 30
(2) does not by itself cause a person's dissociation as a member 31
or a dissolution and winding up of the limited liability company's activities 32
and affairs; and 33
(3) subject to § 4-38-504, does not entitle the transferee to: 34
(A) participate in the management or conduct of the 35
company's activities and affairs; or 36 As Engrossed: H2/9/23 S4/4/23 HB1020
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(B) except as otherwise provided in subsection (c), have 1
access to records or other information concerning the company's activities 2
and affairs. 3
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SECTION 2. Arkansas Code § 4 -38-503 is amended to read as follows: 5
4-38-503. Charging order. 6
(a) On application to a court of competent jurisdiction by a judgment 7
creditor of a member or transferee, a the court may enter a charging order 8
against the transferable interest of the judgment debtor for charge the 9
transferable interest with payment of the unsatisfied amount of the judgment 10
with interest. Except as otherwise provided in subsection (f), a A charging 11
order constitutes a lien on a judgment debtor's transferable interest and 12
requires the limited liability company to pay over to the person to which the 13
charging order was issued any distribution that otherwise would be paid to 14
the judgment creditor. 15
(b) To the extent necessary to effectuate the collection of 16
distributions pursuant to a charging order in effect under subsection (a), 17
the court may: 18
(1) appoint a receiver of the distributions subject to the 19
charging order, with the power to make all inquiries the judgment debtor 20
might have made; and 21
(2) make all other orders necessary to give effect to the 22
charging order. 23
(c) Upon a showing that distributions under a charging order will not 24
pay the judgment debt within a reasonable time, the court may foreclose the 25
lien and order the sale of the transferable interest. Except as otherwise 26
provided in subsection (f), the purchaser at the foreclosure sale obtains 27
only the transferable interest, does not thereby become a member, and is 28
subject to § 4-38-502. 29
(d) At any time before foreclosure under subsection (c), the member or 30
transferee whose transferable interest is subject to a charging order under 31
subsection (a) may extinguish the charging order by satisfying the judgment 32
and filing a certified copy of the satisfaction with the court that issued 33
the charging order. 34
(e) At any time before foreclosure under subsection (c), a limited 35
liability company or one or more members whose transferable interests are not 36 As Engrossed: H2/9/23 S4/4/23 HB1020
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subject to the charging order may pay to the judgment creditor the full 1
amount due under the judgment and thereby succeed to the rights of the 2
judgment creditor, including the charging order. 3
(f) If a court orders foreclosure of a charging order lien against the 4
sole member of a limited liability company: 5
(1) the court shall confirm the sale; 6
(2) the purchaser at the sale obtains the member's entire 7
interest, not only the member's transferable interest; 8
(3) the purchaser thereby becomes a member; and 9
(4) the person whose interest was subject to the foreclosed 10
charging order is dissociated as a member. 11
(g) This chapter does not deprive any member or transferee of the 12
benefit of any exemption law applicable to the transferable interest of the 13
member or transferee. 14
(h) On application to a court of competent jurisdiction by a judgment 15
creditor of a member or transferee against whose transferable interest a 16
charging order was issued, and a showing to the satisfaction of the court 17
that one (1) or more members of the limited l iability company have engaged in 18
bad faith or intentional misconduct in managing the limited liability 19
company's operations or finances so as to reduce or eliminate distributions 20
to the judgment debtor, and thereby effectively defeat the charging order, 21
the court may foreclose the lien and order the sale of the judgment debtor's 22
transferrable interest. Except as otherwise provided in subsection (c), the 23
purchaser at the foreclosure sale obtains only the transferable interest, 24
does not thereby become a memb er, and is subject to § 4 -38-502. At any time 25
before foreclosure under this subsection (b), the member or transferee whose 26
transferable interest is subject to a charging order under subsection (a) may 27
extinguish the charging order by satisfying the judgme nt and filing a 28
certified copy of the satisfaction with the court that issued the charging 29
order. At any time before foreclosure under this subsection (b), a limited 30
liability company or one (1) or more members whose transferable interests are 31
not subject to the charging order may pay to the judgment creditor the full 32
amount due under the judgment and thereby succeed to the rights of the 33
judgment creditor, including the charging order. 34
(c) On application to a court of competent jurisdiction by a judgment 35
creditor of the sole member of a limited liability company against whose 36 As Engrossed: H2/9/23 S4/4/23 HB1020
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transferable interest a charging order was issued, and a showing to the 1
satisfaction of the court that that distributions under a charging order will 2
not pay the judgment debt within a reasonable time, the court may foreclose 3
the lien and order the sale of the transferable interest. If a court orders 4
foreclosure of a charging order lien against the sole member of a limited 5
liability company: 6
(1) the court shall confirm the sale; 7
(2) the purchaser at the sale obtains the member's entire 8
interest, not only the member's transferable interest; 9
(3) the purchaser thereby becomes a member; and 10
(4) the person whose interest was subject to the foreclosed 11
charging order is dissociat ed as a member. 12
(d) This section: 13
(1)(A) Shall not operate to invalidate any provision of any 14
written agreement between a member and a creditor, including without 15
limitation a security agreement, assignment, or other instrument giving the 16
creditor a security interest in, or assignment of, the transferable interest, 17
where a the time of the written agreement, security agreement, assignment, or 18
other instrument was executed by the member and the creditor, the member's 19
executing such written agreement, sec urity agreement, assignment, or other 20
instrument did not violate a provision of the limited liability company's 21
certificate of organization or operating agreement. 22
(B) Except as provided in subsection (c), the foreclosure 23
of a charging order does not g rant the creditor who receives the transferable 24
interest any rights in the transferable interest beyond the rights of a 25
transferee; 26
(2)(A) provides Provides the exclusive remedy by which a person 27
seeking in the capacity of judgment creditor of a member or a transferee of a 28
member to enforce a judgment against a member or transferee may satisfy the a 29
judgment from the judgment debtor's transferable interest out of the member's 30
interest in the limited liability company, where the limited liability 31
company has more than one (1) member. 32
(B)(i) In the case of a limited liability company with 33
more than one (1) member, other remedies, including without limitation 34
foreclosure on the member's interest, except as provided in subsection (b), 35
or a court order for directions, accounts, and inquiries that the debtor or 36 As Engrossed: H2/9/23 S4/4/23 HB1020
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member might have made, are not available to the judgment creditor attempting 1
to satisfy the judgment out of the judgment debtor's transferable interest in 2
the limited liability company; 3
(3) Does not deprive a member of the benefit of any exemption 4
applicable to his or her interest. 5
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/s/Maddox 7
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APPROVED: 4/13/23 10
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