Juneau -- Should creditors be able to foreclose on a partnership interests, thereby becoming limited partners themselves? By passing House Bill 222, sponsored by the House Judiciary Committee, the Alaska House of Representatives Friday said no.

"This bill became a necessity when a court in Connecticut recently held that a judgement creditor of a limited partnership could foreclose on the partnership interest," said Representative Norman Rokeberg, who is a member of the House Judiciary Committee and who carried the legislation in the House. "Such a foreclosure would allow the judgement creditor to become a partner of the limited partnership. This would have the potential to cause its dissolution and the sale of its assets, thereby harming other partners or members who had nothing to do with the foreclosure."

HB 222 would amend 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, but that the partnership or membership, itself, cannot be foreclosed upon.

Rokeberg 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 key advantages of these business entities is that the partners or members can choose who their associates will be and can be assured that the venture will continue until an agreed-upon time or event," Rokeberg said. "HB 222 would prevent a judgement creditor from becoming a substitute partner who could, even with the best of intentions, wreak havoc on the lives and fortunes of innocent people."

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