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Committee adopts banker‑requested amendment to clarify foreclosure rights on LLC membership interests
Summary
Senate Bill 319 was amended to clarify that a perfected lien against an LLC membership interest may be foreclosed; sponsors said the change aligns Arkansas law with Texas‑style charging order protections and prevents creditors from taking ownership of members’ LLC interests.
Representative John Maddox told the committee an agreed amendment to Senate Bill 319 was drafted with input from the bankers’ association to clarify one point: if a bank holds a perfected lien on an LLC membership interest, the amendment makes clear how foreclosure on that perfected lien may proceed.
Maddox said the amendment “just makes it very clear that if a bank has a perfected lien against a membership interest of an LLC, then they can foreclose upon that lien.” Senators questioned the legal term “hypothecation” that appears in the amendment; Maddox and others explained it is a pledge of collateral similar to a mortgage or lien.
Committee members then discussed broader policy in the bill about charging orders and foreclosure. Sponsors explained that under current Arkansas law a creditor with a judgment against an individual member could, in some cases, foreclose on that member’s LLC interest and thereby obtain some membership rights; the amendment and the bill track Texas statute language to convert that remedy into a charging order that gives creditors rights to distributions rather than membership status.
The committee adopted the agreed amendment by voice vote and then moved the amended bill forward. A motion to advance the bill as amended was made by Senator Irvin, seconded by Senator McKee, and approved by voice vote.
Supporters said the change will strengthen liability protections for LLC members and make Arkansas more competitive with other states that explicitly limit creditor foreclosure into membership status. The committee recorded no written opposition in the transcript.
The amendment and the committee action together mean the bill, as amended, will proceed with clarified language about liens, charging orders, and foreclosure procedure; sponsors and banking stakeholders said the amendment resolves bankers’ concerns.
