LLC and Partnership Transfer Restrictions and UCC Article 9 Overrides: Resolving the Conflict

A live 90-minute premium CLE webinar with interactive Q&A


Monday, November 4, 2019

1:00pm-2:30pm EST, 10:00am-11:30am PST

Early Registration Discount Deadline, Friday, October 11, 2019

or call 1-800-926-7926

This CLE webinar will analyze the complex issues associated the right of partners and LLC members to contractually restrict their partners from transferring their interests, which can come in sharp conflict with UCC Article 9 security interests that may override those restrictions. The panel will also discuss the 2018 amendments to Article 9, not yet enacted by the states, which would clarify the override provisions.

Description

Limited liability companies (LLCs) and partnerships have always embraced the "pick-your-partner principle," under which a statute or agreement restricts transfers of a member's or partner's ownership interest. In recent years, the pick-your-partner principle has interacted in complicated and impractical ways with Article 9. UCC 9-406 and 9-408 have often overridden a broad range of statutory and agreement-based anti-assignment provisions, subject to some complex exceptions.

Application of these overrides varies depending on whether a finance transaction is an outright sale of a general intangible that is not a payment intangible, an ordinary security interest in a general intangible that is not a payment intangible, an outright sale of a payment intangible, or an ordinary security interest in a payment intangible. Counsel should have a thorough understanding of the operation of Article 9 in each scenario.

One established way for transactional lawyers to avoid the overrides altogether is to have the organization "opt-in" to Article 8 by adopting appropriate provisions in its organic documents. Related measures include providing for the security to be certificated or uncertificated and preventing the organization from opting back out of Article 8 without the consent of the parties concerned.

Recent UCC amendments would eliminate conflicts with the pick-your-partner principle that can remain despite the exceptions in Sections 9-406 and 9-408, without the need for an Article 8 opt-in. But the amendments need to be enacted in each state, and a conflict-of-laws question may arise if a transaction involves elements from multiple jurisdictions that have not all enacted the 2018 amendments.

Listen as our authoritative panel analyzes the complexities of "pick-your-partner" vs. the UCC override and discusses drafting and structuring solutions to avoid the conflict.

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Outline

  1. Policy behind the pick-your-partner principle
  2. Conflicting goals under UCC Article 9
  3. Navigating unamended 9-406 and 9-408
  4. Opting into Article 8
  5. The 2018 amendments, non-uniform amendments, and choice of law

Benefits

The panel will review these and other crucial issues:

  • How does the pick-your-partner principle conflict with the goals of Article 9?
  • When might UCC 9-406 and 9-408 be found to override anti-assignment provisions in partnership and LLC agreements?
  • What are the appropriate steps for opting into Article 8 to avoid the override?
  • Assuming enactment over time of the 2018 amendments, how should counsel address choice of law issues when a transaction has elements in multiple states?

Faculty

Bjerre, Carl
Professor Carl S. Bjerre

Kaapcke Professor of Business Law
University of Oregon

Professor Bjerre specializes in commercial law. Active in national and international projects to modernize commercial...  |  Read More

Kleinberger, Daniel
Daniel S. Kleinberger

Professor of Law Emeritus
Mitchell Hamline School of Law

Mr. Kleinberger is a consulting and testifying expert on business law and businesses practices.

 |  Read More
Smith, Edwin
Edwin E. Smith

Partner
Morgan, Lewis & Bockius

Mr. Smith concentrates his practice in commercial law, debt financings, structured financings, workouts, bankruptcies,...  |  Read More

Weise, Steven
Steven O. Weise

Partner
Proskauer Rose

Mr. Weise practices in all areas of commercial law and has extensive experience in financing, especially in those...  |  Read More

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