Kaye Scholer Finance partner Jonathan Arkins co-presented Strafford’s Lending to Series of LLCs: Navigating UCC and Bankruptcy Code Risks and Providing Closing Opinions live webinar on Wednesday, August 26. Jonathan’s co-presenter was Young Conaway Stargatt & Taylor LLP partner Norman Powell. This 90-minute (1:00–2:30pm EST) CLE webinar discussed the issues and risks lenders face in loan transactions involving series of LLCs, including UCC Article 9, Bankruptcy Code, and closing opinion issues.
A “series” is like, but not quite, a subsidiary. About a dozen states currently offer Series of LLCs. Most can have their own assets and liabilities. Generally, Series can conduct their affairs in their own names. Where the requisite steps are taken, the debts, liabilities, obligations and expenses incurred, contracted for or otherwise existing with respect to a particular Series are enforceable against the assets of such Series only, and not against the assets of the LLC generally or any other Series. But it’s unclear whether a given state will honor another state’s Series or their internal liability shields. Moreover, significant issues arise when a Series purports to become a debtor for Uniform Commercial Code Article 9 purposes, and the Bankruptcy Code’s applicability to Series is simply unknown.
Nonetheless, in recent years a small but increasing number of Series have been utilized as borrowers in real estate and other financing transactions, and in other contexts far from the regulated investment fund and captive insurance company applications envisioned by the drafters of several of the enabling statutes.
This panel of finance practitioners analyzed potential pitfalls lenders face when dealing with series of LLCs and steps lenders can take to mitigate some of these risks. The panel also discussed issues unique to secured transactions with series borrowers and insolvable under existing law.
- Series overview
- What are series?
- Liability shields
- Entity status
- Governance considerations
- Series and UCC Article 9.
- Identifying the debtor with rights in the collateral
- What’s the debtor’s name?
- Where's the debtor located?
- Series LLCs and the Bankruptcy Code
- Can a Series be a debtor in bankruptcy?
- Will liability shields be respected in bankruptcy?
- Closing opinions for series of LLCs.
- Salient differences in opining on series rather than LLCs
- Inherent limitations