DELAWARE LIMITED LIABILITY COMPANY ACT AMENDMENTS
THE LENDERS' PERSPECTIVE
Effective August 1, 2018, the Delaware Limited Liability Company Act ("DLLCA") was amended to permit the division of a Delaware limited liability company ("LLC") into two or more divisions (each, a "resulting company"; the dividing LLC may survive the division or cease to exist). To accomplish a division, the dividing LLC will enter into a plan of division, which allocates its assets and liabilities to one or more resulting companies.
Upon the effectiveness of a division, each resulting company will own and be liable as a separate and distinct LLC for the assets and liabilities allocated to it pursuant to the plan of division. A lender's liens on the existing assets of a dividing LLC (but not necessarily future assets) will likely survive a division, but the obligor of the liabilities owing to the lender may change, as it is possible for the assets of the dividing LLC to be allocated to new resulting company #1, while the obligation to repay the loans remains with the original LLC (which will no longer own the assets that secure the loans). The foregoing would result in an uncustomary and potentially harmful loan structure.
As "divisions" constitute a new concept under the DLLCA, the potential impact of divisions upon a lender are not currently addressed in a customary set of loan documents. While the DLLCA provides some protections for a lender (such as protections against a division which constitutes a fraudulent conveyance, and limited protections in the case of divisions involving LLCs formed prior to August 1, 2018), we do not believe these protections adequately protect the interests of lenders and, accordingly, we recommend the following to address the new division provisions of the DLLCA:
Of course, reach out to us if you'd like further information on this important topic.
 Immaterial and unrestricted subsidiary provisions contained in certain credit agreements (coupled with related lien release provisions) means that this is not a certainty for all credit agreements.
 New transactions should adopt these recommendations from the outset; existing transactions should adopt recommendations (1), (2) and (3) (and (4), if possible) when the credit agreement is being amended.
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