05/12/1999 02:42 PM Senate JUD

Number 208                                                                                                                      
                                                                                                                                
        SB 165-LTD PARTNERSHIPS AND LTD. LIAB. COMPANIES                                                                        
                                                                                                                                
MR. RICH HOMPESCH, a Fairbanks attorney, explained SB 165 provides                                                              
that creditors of a limited partnership, or creditors of a member                                                               
of an LLC, have only one remedy when seeking to attach the member                                                               
or the limited partner's interest in the entity.  That remedy is a                                                              
charging order.  Most people interpreted the law that way, however,                                                             
a recent Connecticut court decision allowed a creditor to foreclose                                                             
on the member's, or the limited partner's, interest.  That creates                                                              
a hardship to the other members of the limited liability company or                                                             
the limited partnership because they suddenly have a new partner,                                                               
which in most cases is very detrimental to the business.                                                                        
                                                                                                                                
SENATOR DONLEY asked what a charging order is.                                                                                  
                                                                                                                                
MR. HOMPESCH replied a charging order gives the judgment creditor                                                               
the right to receive all of the distributions that would have                                                                   
otherwise been paid to the member or the limited partner.                                                                       
                                                                                                                                
SENATOR DONLEY said it sounds like an assignment of interest.                                                                   
CHAIRMAN TAYLOR indicated it is the same thing.                                                                                 
                                                                                                                                
CHAIRMAN TAYLOR asked what rights the change in the law would give                                                              
to the creditor.                                                                                                                
                                                                                                                                
MR. HOMPESCH answered the creditor will receive all of the                                                                      
distributions from the limited liability company or the limited                                                                 
partnership.                                                                                                                    
                                                                                                                                
CHAIRMAN TAYLOR asked if the creditor would be able to force a sale                                                             
or liquidation.  MR. HOMPESCH said that is correct.                                                                             
                                                                                                                                
SENATOR DONLEY asked if all distributions go to the creditor.  MR.                                                              
HOMPESCH explained if each of four partners had a 25 percent                                                                    
interest, and one partner had a creditor with a charging order, 25                                                              
percent of the distributions would be paid to the creditor.                                                                     
                                                                                                                                
SENATOR DONLEY moved SB 165 from committee with individual                                                                      
recommendations.  There being no objection, the motion carried.