Anti-Duress Clause in a LLC
I had set up a single member limited liability for a client to hold his investment assets. The client asked that the LLC appoint a friend as manager. The friend was appointment as manager so the client would not hold discretion to make distributions which could be subject to a charging lien. The LLC agreement gave the members (client) the right to replace the manager. The client asked if he should insert an anti-duress provision in the agreement which would say that the manager would not make distributions under duress. These anti-duress clauses are usually found in offshore trusts agreements to prevent the offshore trustee from complying with U.S. court orders. Sometimes they work; often they do not work. I don’t think they would work with a domestic LLC because the manager, if a U.S. resident, would comply with the court to protect himself from contempt regardless of the anti-duress language.
I told the client that the LLC “asset” which could be attacked by his creditor was his right to vote in the LLC, particularly, his right to replace the manager. A creditor could convince a court to levy upon the LLC member’s voting right when the creditor’s remedy was otherwise restricted by statute to a charging lien. The creditor could then exercise the voting right to appoint itself (the creditor) as manager, and then the new manager could make cash distributions which the creditor could get under the charging lien
I have not seen this creditor attack used in Florida, but I have read that it has been successfully tried in another state. To prevent this collection device, the client would have to give up the right to replace the manager. This means if the client were unhappy with how the chosen manager is running the LLC the client could not oust him. Most people do not want to give up this much control over their assets.
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Jon Alper is an expert in asset protection planning for individuals and small businesses.
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