¶ 1501
Overview
Scope of the chapter. This chapter examines section 60 of the Nevis Limited Liability Company Ordinance, which governs the rights of a judgment creditor of a member. Section 60 is the provision for which most Nevis LLCs are formed. It makes the charging order the only remedy a member's creditor has against the member's interest, whether the company has one member or many; it bars foreclosure, seizure, levy, attachment and orders for an accounting; it denies the creditor any voice in the company's affairs; it refuses enforcement to foreign judgments and orders that would give the creditor more; it excludes fines, penalties and punitive and multiplied damages from what the order may secure; it limits the life of the order to three years without renewal; and it permits the company, where its operating agreement so provides, to pay its members' income taxes directly to the taxing authority without the payment counting as a distribution. Nevis Limited Liability Company Ordinance, Cap. 7.04(N), § 60 (rev. ed. 2020) (St. Kitts & Nevis) ("NLLCO").
Plan of the chapter. Paragraph 1510 traces the origins of the charging order and sets out what the Nevis order gives the creditor. Paragraph 1520 examines the exclusive-remedy rules and the creditor's exclusion from management. Paragraph 1530 follows a creditor through the procedure for obtaining an order in Nevis: the bond required by section 62, the refusal to enforce foreign judgments, the bar on interim relief against the company, redemption and discharge. Paragraph 1540 examines the three-year limit. Paragraph 1550 considers what the creditor receives while the order is in force, the company's capital calls and payments the order does not reach. Paragraph 1560 examines section 60(18) and the payment of members' taxes, and sets the Nevis rule beside the position under the American statutes. Paragraph 1570 addresses the single-member company and the member's bankruptcy. Paragraph 1580 compares section 60 with the statutes of Delaware, Wyoming, Florida, the Cook Islands and Belize and considers how courts outside Nevis treat a Nevis interest. Paragraph 1590 closes with drafting provisions and a checklist.
Relation to other chapters. Chapter 12 introduced the Ordinance and the member's interest as personal property. Chapter 13 examines the operating agreement, on which much of this chapter depends, and chapter 14 the duties of managers who decide whether to distribute while an order is in force. Chapter 16 treats transfers, withdrawal and dissolution, and chapter 17 the use of Nevis LLCs in international structures and their classification for United States tax purposes. The rule in section 61 on fraudulent dispositions to a Nevis LLC is examined with the trust rule in chapter 21, the bond in chapter 22, foreign judgments in chapter 23, and the conduct of American courts toward members within their reach in chapter 25. The comparative American law of charging orders is treated at length in the companion volume, Lighthouse on Limited Liability Companies, chapter 27, and the planning use of LLCs against members' creditors in chapter 55 of that volume.
The point of the chapter. Section 60 is the most detailed charging-order provision in any statute examined in this series. Its strength in a Nevis court is clear from its text. Its limits lie elsewhere: in the creditor's other claims, which section 60 does not purport to bar; in the reach of foreign courts over a member who lives within their jurisdiction; and in the default rules of the Ordinance, which can end a single member's membership or dissolve the company on the member's bankruptcy unless the operating agreement provides otherwise. A planner who drafts with all three in view can make the protection the statute offers a practical reality.
Terms. A charging order is an order charging a member's interest with payment of a judgment, which entitles the creditor to the member's distributions as and when the company makes them. A member's interest is a member's share of the company's profits, losses, income, gain, deductions and credits, the right to receive distributions and all the member's rights and obligations under the Ordinance, the Articles of Organisation and the operating agreement. NLLCO § 2. A distribution is a transfer of money or property from the company to or for the benefit of a member in the capacity of member, or of an assignee, in respect of the interest. Id.