In Wells Fargo v. Continuous Control Solutions, Inc., No. 2-431/11-1285, file August 8, 2012, the Iowa Court of Appeals held that a court cannot compel an LLC subject to a charging order to provide quarterly financial statements to the judgment creditors so they could verify that no distributions had been made to the judgment debtors.
In rendering its opinion the court narrowly construed the meaning of “make all other orders necessary to give effect to the charging order.” Iowa Code §489.503(2)(b). The three-judge panel compared this section to Iowa Code Section 489.503(2)(a) which permits a receiver appointed by a court “to make all inquiries the judgment debtor might have made” and found that because subsection (b) does not “specifically authorize the requested disclosure,” the power to “make all other orders necessary” must not include ordering the periodic disclosure of financial information. Apparently, all does not mean all to the court of appeals.
The court buttresses its conclusion by comparing holders of a lien to a transferee of an LLC interest. Because Iowa Code Section 489.502(1)(c)(2) does not permit transferees to have access to information about the LLC except in case of dissolution and winding up, holders of a lien cannot have greater
rights.
But prohibiting access to information to transferees is related to their status as mere holders of an economic interest, without any management or governance rights. In the case of a judgment creditor, granting them access to periodic financial statements is an enforcement tool to ensure compliance with a court order.
-Marc Ward
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