Creditors' Rights Against Single-Member LLC Owners

Commercial lenders understandably spend significant effort assessing the value of a borrower’s or guarantor’s assets to ensure that, if a borrower fails to repay and the lender obtains a judgment against the borrower or guarantor, those assets may be used to satisfy the amount owed by the borrower. But lenders and their counsel also need to consider how they will be able to enforce a prospective judgment, as applicable enforcement mechanisms may frustrate a creditor’s efforts to collect against assets presumed to be available at the time a loan or other credit transaction is originated.

These considerations are especially warranted when the relevant assets are comprised of a borrower’s or guarantor’s interests in one or more limited liability companies (LLC). Under New York’s Limited Liability Company Law (LLC Law), a judgment creditor is generally limited to enforcing against a debtor’s economic rights in an LLC and cannot, unless permitted by the relevant operating agreement, assume ownership and control of the debtor’s voting or managerial rights. See Boyce v. Willner, No. 650210/09, 2013 WL 358604, at *4-5 (Sup. Ct. N.Y. County 2013).