Juneau -- The Alaska Senate Monday unanimously passed House Bill 222, sponsored by the House Judiciary Committee, which prohibits creditors from foreclosing on partnership interests and thereby becoming limited partners themselves.

"A court in Connecticut recently held that a judgement creditor of a limited partnership could foreclose on the partnership interest," said Representative Pete Kott (R-Eagle River), Chairman of the House Judiciary Committee. "This would allow the judgement creditor to become a partner of the limited partnership and would have the potential to cause its dissolution and the sale of its assets. There would be harm to the other partners or members who had nothing to do with the foreclosure."

HB 222 amends Alaska statutes to make it clear that a judgement creditor of an Alaska limited partnership or limited liability company only has the remedy of what is called a "charging order." A charging order entitles the creditor to receive the distributions to which the partner or member would be entitled. However, the partnership or membership, itself, cannot be foreclosed upon.

Kott noted that limited partnerships and limited liability companies, which are designed for closely held businesses or investment activities, are often used by families. One of the advantages of these business entities is that the partners or members can choose their associates. A judgement creditor who becomes a substitute partner could inadvertently cause serious problems for these innocent people.

HB 222 will be reconsidered before being sent to the Governor for his signature.