Nevis LLC charging order protection

What a charging order is

By way of a charging order, a court burdens the debtor's LLC membership interest with responsibility for satisfying the judgment debt. In practical terms, whenever the LLC pays distributions to the debtor-member, those payments get diverted to the judgment creditor until the debt is cleared. Crucially, the order confers no ownership of the membership interest on the creditor, grants them no power to vote on, run, or sway the LLC, and imposes no duty on the LLC to distribute anything at all.

Across most US states, a judgment creditor going after an LLC member can pick from several remedies, of which the charging order is just one. Certain states go further and let the creditor pursue foreclosure of the membership interest — in effect compelling its sale to cover the judgment. Nevis law does away with all such supplementary remedies.

The provisions of the Nevis LLC Ordinance

The Nevis Limited Liability Company Ordinance 1995 establishes the charging order as the sole remedy that a judgment creditor of a Nevis LLC member may pursue. Foreclosure, attachment, garnishment, levy, and every other remedy aimed at the membership interest itself are off the table. All the creditor has is the charging order, together with whatever distributions the member happens to receive during the period the order remains in force.

It is precisely this sole-remedy provision that gives the Nevis LLC its worth within asset protection arrangements. The wording leaves no room for doubt: the charging order is not simply the main remedy or the favoured one — it is the single remedy available. Under Nevis law, a creditor holding a judgment against a Nevis LLC member is left with exactly one route against the membership interest, and no more.

The limits of a creditor's power

The reason a single-member LLC works especially well

Within a single-member Nevis LLC, the trust is usually the lone member, while the settlor usually serves as manager. Once a charging order fastens onto the trust's membership interest, the creditor acquires only the entitlement to collect distributions if and when the manager pays them. Because the manager — the settlor — gains nothing personally by paying distributions during the life of the order, and because the trustee, being the member, decides whether any distribution is ever made, the charging order's real-world impact is very nearly nil.

That is not to say the charging order gives the creditor nothing — it operates as a lien resting on the interest, barring its transfer until the debt is met. Yet as a tool for enforcement, a charging order aimed at a soundly structured single-member Nevis LLC ranks among the feeblest remedies to be found anywhere in asset protection.

Where the charging order sits within a trust-and-LLC structure

Within the usual Nevis trust-and-LLC arrangement, the charging order supplies a second tier of defence sitting beneath the trust. A creditor going after the settlor has first to attempt to get at the membership interest by way of the trust tier. Should they contest the trust in Nevis, they run into the NIETO's creditor bond, its limitation period, and its criminal standard of proof. And if they nonetheless manage to reach the membership interest, waiting for them next is the Nevis LLC's sole-remedy charging order. That amounts to two hurdles in sequence rather than a single one.

It is exactly this twin-tier design that explains why pairing the trust with the LLC is the norm, rather than relying on either one by itself. See Nevis trust and LLC and Nevis LLC for the full structure.

The charging order protection provided by Nevis law attaches specifically to the membership interest in the Nevis LLC. Verify the law as it currently stands with a Nevis-qualified adviser.