Florida Legislature Passes Changes, Clarifications to the State’s LLC Charging Order Statute

The Florida Supreme Court severely curtailed the protections offered to the members of Florida single-member LLCs when it decided the case of Olmstead v. Federal Trade Commission. In this decision, the court allowed a creditor of the member in a single-member LLC to bypass the limited liability charging order restrictions offered by Florida law. This allowed the creditor to seize the debtor’s entire membership interest in the LLC, which delivered all of the entity’s assets to the creditor. New legislation (HB 253) was passed by the Florida Legislature during the 2011 session and awaits the Governor’s signature. This new legislation, if signed by the Governor, will make the following changes and clarifications to the existing Florida LLC charging order statute:

1) The legislation is intended to clarify existing law and be remedial in nature, and it is designed and intended to apply retroactively.

2) It clarifies that the Florida Supreme Court decision in the Olmstead case does not extend to multiple member LLCs.

3) It states that in a single member LLC, a charging order is the “sole and exclusive remedy” which a judgment creditor of a member may use to satisfy a judgment from such debtor member. It also provides that the judgment creditor is only entitled to distributions from an LLC, unless the judgment creditor establishes that distributions under a charging order will not satisfy the judgment within a reasonable time, in which case a charging order will not be the sole and exclusive remedy available to the judgment creditor.

4) It states that in a multiple member LLC, a charging order is the “sole and exclusive remedy” which a judgment creditor of a member may use to satisfy a judgment from such debtor member, and it provides that the judgment creditor is only entitled to distributions from an LLC. It also prohibits foreclosure on a judgment debtor’s membership interest in the LLC by the judgment creditor.

5) The new law leaves intact the rights of secured creditors that have been granted a consensual security interest in the LLC by the debtor; the principles of law and equity regarding fraudulent transfers; equitable principles not inconsistent with the law; and the continuing jurisdiction of courts to enforce the charging order consistent with the law.

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