31 §675. Restrictions on distributions and wrongful distributions (WHOLE SECTION TEXT EFFECTIVE UNTIL 7/1/11)
Title 31: PARTNERSHIPS AND ASSOCIATIONS
Chapter 13: LIMITED LIABILITY COMPANIES
Subchapter 6: DISTRIBUTIONS AND WITHDRAWAL
§675. Restrictions on distributions and wrongful distributions
(CONTAINS TEXT WITH VARYING EFFECTIVE DATES)
(WHOLE SECTION TEXT EFFECTIVE UNTIL 7/1/11)
1. Distribution prohibited. A distribution may not be made if after giving effect to the distribution:
A. The limited liability company is not able to pay its debts as they become due in the usual course of business; or [1993, c. 718, Pt. A, §1 (NEW).]
B. All liabilities of the limited liability company, other than liabilities to members on account of their limited liability company interests and liabilities for which the recourse of creditors is limited to specified property of the limited liability company, exceed the fair value of the assets of the limited liability company, except that the fair value of property that is subject to a liability for which the recourse of creditors is limited is included in the assets of the limited liability company only to the extent that the fair value of that property exceeds that liability. [1993, c. 718, Pt. A, §1 (NEW).]
[ 1993, c. 718, Pt. A, §1 (NEW) .]
2. Distribution not prohibited. A limited liability company may base a determination that a distribution is not prohibited under subsection 1 on either:
A. Financial statements prepared on the basis of accounting practices and principles that are reasonable under the circumstances; or [1993, c. 718, Pt. A, §1 (NEW).]
B. A fair valuation or other method that is reasonable under the circumstances. [1993, c. 718, Pt. A, §1 (NEW).]
[ 1993, c. 718, Pt. A, §1 (NEW) .]
3. Effect of distribution. Except as provided in subsection 5, the effect of a distribution under subsection 1 is measured as of:
A. The date the distribution is authorized if payment occurs within 120 days after the date of authorization; or [1993, c. 718, Pt. A, §1 (NEW).]
B. The date payment is made if it occurs more than 120 days after the date of authorization. [1993, c. 718, Pt. A, §1 (NEW).]
[ 1993, c. 718, Pt. A, §1 (NEW) .]
4. Indebtedness to member. A limited liability company's indebtedness to a member incurred by reason of a distribution made in accordance with this section is at parity with that limited liability company's indebtedness to its general unsecured creditors, except to the extent subordinated by agreement.
[ 1993, c. 718, Pt. A, §1 (NEW) .]
5. Indebtedness not a liability. If terms of the indebtedness provide that payment of principal and interest is to be made only if, and to the extent that, payment of a distribution to members could then be made under this section, indebtedness of a limited liability company, including indebtedness issued as a distribution, is not a liability for purposes of determinations made under subsection 2.
[ 1993, c. 718, Pt. A, §1 (NEW) .]
6. Indebtedness issued as a distribution. If the indebtedness is issued as a distribution, each payment of principal or interest on the indebtedness is treated as a distribution, the effect of which is measured on the date the payment is actually made.
[ 1993, c. 718, Pt. A, §1 (NEW) .]
SECTION HISTORY
1993, c. 718, §A1 (NEW). 2009, c. 629, Pt. A, §1 (RP). 2009, c. 629, Pt. A, §3 (AFF).