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Digg It - Asset Protection: Charging Orders -- What They Are - How They Work
These potential scenarios should concern any entrepreneur or investor: You get sued personally and lose; the judgment creditor (the entity that won the suit and was awarded a judgment against you) decides to go after your bus
According to USFDA, a combination product is one composed of any combination of a drug and device; biological product and device; drug and biological product
iness and investment assets. Or you have a retail store plus several real estate investments; you get sued for something related to the store and the judgment creditor decides to attach your real estate. You can cry, “Unfair!
; or drug, device, and biological product and fixed dose combination would include two or more combinations of drug.
Examples of combination products may in
Examples of combination products may in
” all day long and it won’t matter if you haven’t taken the appropriate asset protection steps.
An asset protection tool you need to understand is the charging order. By definition, a charging order is an order issued by a c
An asset protection tool you need to understand is the charging order. By definition, a charging order is an order issued by a c
lude drug-coated devices, drugs packaged with delivery devices in medical kits, and drugs and devices packaged separately but intended to be used together.
ourt to a judgment creditor which essentially compels an entity of which the debtor is a partner or member to direct to the creditor until the judgment is satisfied any distributions that would otherwise have been made to the
here is enormous increase in the number of combination products entering the market in the recent years. Combination products have proven advantages but fixe
debtor (from Asset Protection: Concepts & Strategies for Protecting Your Wealth by Jay Adkisson and Christopher M. Riser, McGraw-Hill, 2004).
What this means is that if you have an interest in a Charging Order Prote
What this means is that if you have an interest in a Charging Order Prote
d dose combinations are still in the process of convincing regulatory authority on their advantages over the single ingredient formulations.
Combination pro
Combination pro
cted Entity (COPE) [entities for which creditors are limited to using charging orders as remedies in collecting debt, such as a Limited Partnership (LP), a Limited Liability Company (LLC), and certain others] and a creditor o
ucts have become life saving products for the pharmaceutical companies who doesn’t have many innovative molecules in their product pipeline and have been inc
btains a charging order, the entity is ordered to pay the creditor any money that would have gone to you until the judgment is paid in full. In most states, the creditor has no rights with respect to the ownership or manageme
easingly used in the product life cycle management. Even the companies having product patents are trying to extend their product life cycle through the combi
nt of the entity and cannot force the entity to make a distribution. The idea is to balance the rights of creditors with those of the non-debtor partners.
Charging orders do not come into play with assets such as stock in a
Charging orders do not come into play with assets such as stock in a
nation products and maximize the revenues. But the companies involved in this practice are overlooking that they are burdening the patients both economically
orporation or personal property. But in an entity such as an LLC, legislators have taken steps to prevent creditors from attaching partnership or membership interests and essentially becoming partners or members themselves be
and physically. They need to rightly judge the benefits of the combination products and they have to even look at the risks involved when combining the produ
cause such a change in ownership could disrupt the operations of the entity. Where you are not protected by state law, discuss this issue with your attorney because you may be able to create a comparable level of protection t
ts. Some of the combination products were well accepted by physicians while others suffered. Companies involved in development of combination products are fi
hrough your operating agreement.
How you are protected
As long as the creditor has the charging order, the LLC can simply not make any distributions and the creditor should not receive any money. For exampl
How you are protected
As long as the creditor has the charging order, the LLC can simply not make any distributions and the creditor should not receive any money. For exampl
ding difficulty in defining their combination products and facing various challenges from selecting a combination to marketing it.
Following aspects would a
Following aspects would a
e, let’s say a visitor to your home slipped on the sidewalk, sued you, and won. As a judgment creditor, he decides to go after all of your assets and gets a charging order against the LLC that owns your real estate investment
dd to the challenges in developing combination products:
Which markets to tap where the combination products can do fairly well?
Which combination prod
Which markets to tap where the combination products can do fairly well?
Which combination prod
. He typically can’t collect anything until the LLC makes a distribution, and you and the other members of the LLC are perfectly within your rights to decide to not make any distributions for as long as you like. Because of t
cts are meaningful and rational?
Which therapeutic categories to select?
Which Combinations can address unmet needs of the patients?
Do combin
Which therapeutic categories to select?
Which Combinations can address unmet needs of the patients?
Do combin
his, creditors with charging orders are often willing to negotiate a settlement to get at least a portion of their money and be done with the situation.
Another issue that often prompts judgment creditors to settle charging
Another issue that often prompts judgment creditors to settle charging
tions increase the patient compliance?
What would be the developing cost?
How to tackle the risks encountered during combination product developmen
What would be the developing cost?
How to tackle the risks encountered during combination product developmen
orders quickly is the potential for tax liability. If the creditor is entitled to the distribution when it is made, he may also be obligated to pay the taxes. It’s possible for the members of the LLC to issue a K-1, which is
t?
As combination products don't fit into the traditional categories of drugs, medical devices, or biological products, the USFDA is in the process of devel
As combination products don't fit into the traditional categories of drugs, medical devices, or biological products, the USFDA is in the process of devel
the tax form used to report a member’s share of an LLC’s income, potentially making the creditor liable for taxes on profits even though he hasn’t received any money.
As of January 2007, there were no known cases where the I
As of January 2007, there were no known cases where the I
ping new procedures for reviewing their safety, efficacy and quality.
Professional from academic institutions, pharmaceutical industries, health care indust
Professional from academic institutions, pharmaceutical industries, health care indust
S has held a judgment creditor holding a charging order liable for taxes—but nor are there any cases where the IRS has specifically relieved a judgment creditor of such liability. Until case law becomes definitive on the issu
y and representatives from various regulatory agencies are working out to design the regulatory requirements for manufacture and sale of combination products
e, creditors may be reluctant to take a chance that they could be held liable for taxes on profits they haven’t received and may never receive.
The protection offered by charging orders may be circumvented in a number of way
The protection offered by charging orders may be circumvented in a number of way
.
As there is an increasing trend of the combination products companies manufacturing such products should be able to tackle the problems involved in the de
As there is an increasing trend of the combination products companies manufacturing such products should be able to tackle the problems involved in the de
s, depending on the state in which the entity operates and your individual circumstances.
Be aware that simply forming a partnership or LLC is not going to automatically protect your assets. Charging order protected entities
Be aware that simply forming a partnership or LLC is not going to automatically protect your assets. Charging order protected entities
elopment. They need to be wiser in analyzing the market trends and the regulatory requirements.
Companies that provide selfless information through particip
Companies that provide selfless information through particip
are some of the strongest and most acceptable asset protection tools available, but to be effective, they must be properly structured and carefully drafted according to your particular requirements and the laws of your state
tion in industry events and feedback to regulatory authorities would be able to face the challenges and will be successful in developing combination products
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