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Matthew A. Quick, Esq.

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LLCs and Creditor Attachment of Membership Distributional Interest (Illinois)

August 31st, 2010 · No Comments · Business

By Matthew A. Quick

The holding in First Mid-Illinois Bank & Trust v Parker, highlights a concern of the protections afforded by a limited liability company (LLC). In the case, the Plaintiff succeeded in having the court enter a judgment against the Defendants. To enforce the judgment, the Plaintiff joined an LLC in which the Defendants owned membership interests. 805 ILCS 180/30-20 states that a court “may charge the distributional interest of the [LLC member] to satisfy the judgment.” In addition, 805 ILCS 180/30-20 provides, “A charging order constitutes a lien on the judgment debtor’s distributional interest. The court may order a foreclosure of a lien on a distributional interest subject to the charging order at any time. . . .”

Furthermore, 735 ILCS 5/4-101 states:

In any court having competent jurisdiction, a creditor having a money claim, whether liquidated or unliquidated, and whether sounding in contract or tort, or based upon a statutory cause of action created by law in favor of the People of the State of Illinois, or any agency of the State, may have an attachment against the property of his or her debtor, or that of any one or more of several debtors, either at the time of commencement of the action or thereafter, when the claim exceeds $20, in any one of the following cases:
1. Where the debtor is not a resident of this State.
2. When the debtor conceals himself or herself or stands in defiance of an officer, so that process cannot be served upon him or her.
3. Where the debtor has departed from this State with the intention of having his or her effects removed from this State.
4. Where the debtor is about to depart from this State with the intention of having his or her effects removed from this State.
5. Where the debtor is about to remove his or her property from this State to the injury of such creditor.
6. Where the debtor has within 2 years preceding the filing of the affidavit required, fraudulently conveyed or assigned his or her effects, or a part thereof, so as to hinder or delay his or her creditors.
7. Where the debtor has, within 2 years prior to the filing of such affidavit, fraudulently concealed or disposed of his or her property so as to hinder or delay his or her creditors.
8. Where the debtor is about fraudulently to conceal, assign, or otherwise dispose of his or her property or effects, so as to hinder or delay his or her creditors.
9. Where the debt sued for was fraudulently contracted on the part of the debtor. The statements of the debtor, his or her agent or attorney, which constitute the fraud, shall have been reduced to writing, and his or her signature attached thereto, by himself or herself, agent or attorney.
10. When the debtor is a person convicted of first degree murder, a Class X felony, or aggravated kidnapping, or found not guilty by reason of insanity or guilty but mentally ill of first degree murder, a Class X felony, or aggravated kidnapping, against the creditor and that crime makes the creditor a “victim” under the Criminal Victims’ Asset Discovery Act.
11. When the debtor is referred by the Department of Corrections to the Attorney General under Section 3-7-6 of the Unified Code of Corrections to recover the expenses incurred as a result of that debtor’s cost of incarceration.

When the statute provisions cited are read together, they allow for prejudgment attachment by a potential judgment creditor to preserve an LLC member’s distributional interest. Once a judgment is entered and a charging order is obtained, the order relates back to the date of the prejudgment attachment order for purposes of lien priority.

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