Reviewed by Aug 27, 2020| Updated on
What is a Charging Order?
A creditor-imposed court-authorised lien on distributions from a business entity, such as a limited partnership or private limited company is known as a charging order. The debtor, here, will be a partner, member, or the owner of a business entity.
Until the debt is settled, the creditor can legally attach distributions to the debtor from the business. However, the charging order does not give the creditor rights in the business activity. Also, the creditor cannot interfere in the management of the business associated with the debtor.
How Does Charging Order Work?
Though the creditor may not be able to claim against the property of a limited partnership or private limited company, the creditor may force the liquidation of the business to satisfy the claim against the debtor if it is an investment-based entity.
In a sole-proprietor business, foreclosure on the debtor's interest may occur along with the charging order since there are no other debtor members to protect. Liquidation of the business may happen, and the proceeds are utilised to satisfy the creditor's claim.