A $310,000 judgment against a Farmington oilfield services company is worth what the company has left, and if the owners took $400,000 in distributions the year before it stopped paying vendors, that may be nothing. The money still exists, though, and the question is who can go get it.
Colorado’s Supreme Court answered part of that in 2013, not the way creditors hoped, and New Mexico’s LLC Act points the same way. Bankruptcy is usually the better route.
What did the Colorado Supreme Court hold in Weinstein?
In Weinstein v. Colborne Foodbotics, LLC, 2013 CO 33, 302 P.3d 263 (Colo. 2013), the court held that “absent express statutory authority,” a creditor cannot bring the unlawful distribution claim created by Colo. Rev. Stat. § 7-80-606, because the claim belongs to the company. An insolvent LLC’s managers, it added, do not owe creditors the fiduciary duty that insolvent corporations’ directors do, citing § 7-80-705.
Section 7-80-606(3) also ends a member’s exposure after three years. The case still stands: Justia’s current Colorado code (2023 edition) keeps both section numbers, and the Colorado bankruptcy court cited Weinstein without qualification in Signia, Ltd. v. Male Excel Medical, P.A. in May 2025.
Can a creditor sue New Mexico LLC members directly for a wrongful distribution?
Not under the LLC Act. NMSA 1978, § 53-19-26 (2025 edition on Justia) bars a distribution that leaves the company unable to pay debts as they come due, or with total assets at fair market value below its liabilities. Reliance on reasonable financial statements is allowed, which is where a CPA’s read matters: a tax-basis balance sheet may carry a workover rig at zero, which is not fair market value.
Liability sits in § 53-19-27. Members or managers who approved the distribution owe the excess “to the limited liability company,” with contribution from members who knowingly received it. No creditor right appears. Section 53-19-13 shields members from company debts, and the duties in § 53-19-16 run to the company and its members. Neither section sets its own limitations period.
No reported New Mexico appellate decision on creditor standing under § 53-19-27 was located, nor any Tenth Circuit or District of New Mexico decision recognizing an LLC manager’s duty to creditors or deepening insolvency. And under § 53-19-58, a suit for the company needs a vote of members not adverse to it. If both members took the money, nobody is left to vote. State-law strategy belongs with New Mexico-licensed counsel.
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Why is New Mexico’s voidable transactions law the real answer to Weinstein?
It gives the creditor a claim in its own name. Under the Uniform Voidable Transactions Act (NMSA 1978, §§ 56-10-14 through 56-10-29), § 56-10-19(A) makes a transfer voidable by an existing creditor if the debtor received no reasonably equivalent value and was or became insolvent. Section 56-10-17 defines value as property or satisfaction of a debt, and a return on equity is neither. So the fight is about insolvency, and it tilts toward creditors: Section 56-10-16(B) presumes insolvency when a debtor is generally not paying its debts as they come due. Later creditors can turn to § 56-10-18, which lists a transfer “to an insider” as a sign of actual intent. Recovery under § 56-10-22(B) is the value transferred or the creditor’s claim, “whichever is less,” and § 56-10-23 allows four years from each transfer for constructive fraud. The same rules drive merchant cash advance fraudulent transfer disputes.
How does an involuntary bankruptcy put a trustee in charge of the clawback?
Under 11 U.S.C. § 303(b), three creditors with undisputed, noncontingent claims totaling $21,050 above liens can put the LLC into Chapter 7 (adjusted April 1, 2025, per the Judicial Conference’s notice). With fewer than 12 qualifying creditors, one can file alone; the count excludes insiders and any “transferee of a transfer that is voidable.” (See the firm’s post on the twelve-creditor count.) A dismissed petition can cost the filers fees under § 303(i).
The LLC’s own § 53-19-27 claim then becomes estate property under § 541(a)(1). Section 544(b) lets the trustee “step into the shoes of a creditor,” as the Supreme Court put it in United States v. Miller, 604 U.S. ___ (2025), which arose from the Tenth Circuit, and bring the UVTA claim. Section 548(a)(1)(B) adds a federal claim reaching two years back. Recovery runs against the members under § 550(a), and the trustee has two years from the order for relief to sue under § 546(a). Section 723 reaches only general partners, not LLC members.
Can a New Mexico trustee borrow the IRS’s ten-year reach-back?
Trustees sometimes argue that § 544(b) lets them borrow the IRS’s ten-year collection period under 26 U.S.C. § 6502. The bankruptcy court here said no in Wagner v. Ultima Homes, Inc. (In re Vaughan Co., Realtors), 498 B.R. 297 (Bankr. D.N.M. 2013), warning that it “would eviscerate the UFTA’s four-year look back period.”
Ebner v. Kaiser (In re Kaiser), Adv. No. 13-01243 (Bankr. N.D. Ill. Dec. 31, 2014), went the other way. No Tenth Circuit decision was located, and Miller, a sovereign immunity case, does not settle the split. In New Mexico, plan on four years under § 544(b) and two under § 548.
When does a receiver or a charging order fit better?
Under the Receivership Act, NMSA 1978, § 44-8-1 et seq., a court may appoint a receiver where receivers are customary or where just cause and irreparable harm exist, and § 44-8-7(G) lets the receiver “bring and defend actions,” including the company claim its members will never authorize. But the creditor usually funds it, and a receiver lacks a trustee’s federal avoidance powers.
A charging order under § 53-19-35 is for creditors of a member, not of the LLC. It helps only after a creditor wins a judgment against a member who owns other LLCs.
How does the clawback math work for a Farmington oilfield services LLC?
Take a two-member Farmington well service LLC that paid each member $200,000 in quarterly draws from October 2024 through September 2025, while owing $1.1 million against $850,000 of assets at fair value. It stopped paying vendors in October 2025. An equipment rental company with invoices from mid-2024 took a $310,000 judgment in May 2026. Nine other unsecured creditors bring total claims to $780,000.
A direct UVTA suit can recover up to $310,000 plus interest and costs, and the October 2024 draw must be sued on by October 2028. The creditor pays its own fees.
With under 12 creditors, the rental company can file an involuntary Chapter 7 alone in November 2026. The § 548 window reaches back only to November 2024, so the $100,000 October 2024 draw falls outside it, but § 544(b) picks it up. If the trustee recovers $400,000 and administration costs $70,000, $330,000 remains. After any priority claims under § 726(a) (assume none), unsecured creditors get about 42 cents on the dollar, roughly $131,000 on the judgment. Less than a winning direct suit, but the trustee carries the cost.
| Remedy | Who has standing | Lookback window | What the creditor recovers |
|---|---|---|---|
| LLC Act, NMSA § 53-19-27 | The LLC only | None stated | Nothing directly |
| UVTA suit, NMSA §§ 56-10-18, 56-10-19 | The creditor | Four years (one for insider preference) | Lesser of transfer or claim |
| Involuntary Chapter 7 | The trustee, 11 U.S.C. §§ 541, 544(b), 548 | Two years (§ 548); four via § 544(b) | Pro rata share of net recoveries |
| Receivership, NMSA § 44-8-1 et seq. | Court-appointed receiver | That of the underlying claim | As the court orders |
| Charging order, NMSA § 53-19-35 | A member’s judgment creditor | None | The member’s distributions |
Frequently Asked Questions
Can I sue the owners of a New Mexico LLC personally for the company’s debt?
Not just because they own it; NMSA § 53-19-13 shields members from company debts. But members who took distributions while the company was insolvent can be sued under New Mexico’s Uniform Voidable Transactions Act, and a trustee or receiver can press the company’s own claims.
What makes a distribution to an LLC member voidable in New Mexico?
Under NMSA § 56-10-19(A), a transfer is voidable by an existing creditor if the company received no reasonably equivalent value and was or became insolvent. A distribution gives the company no value, so insolvency is usually the fight, and § 56-10-16(B) presumes insolvency when debts generally go unpaid.
How long does a creditor have to challenge a distribution under New Mexico law?
NMSA § 56-10-23 allows four years from the transfer for constructive fraud claims, and four years or, if later, one year after discovery for actual intent claims. An insider preference claim has one year. Each distribution has its own deadline.
Can a single creditor put a New Mexico LLC into involuntary bankruptcy?
Yes, if the LLC has fewer than 12 qualifying creditors and the petitioner holds at least $21,050 in noncontingent, undisputed claims (the threshold since April 1, 2025). Under 11 U.S.C. § 303(b)(2), insiders and transferees of voidable transfers are not counted. Otherwise three creditors must join.
How far back can a Chapter 7 trustee in New Mexico reach to recover member distributions?
Section 548 reaches transfers within two years before the petition. Through § 544(b), the trustee can also use New Mexico’s four-year voidable transaction period if an actual unsecured creditor could have sued. In In re Vaughan Co., Realtors (2013), the New Mexico bankruptcy court declined to stretch that to the IRS’s ten-year period.
I received distributions from an LLC that later failed. What defenses do I have?
Solvency and value come first. If the company was solvent at a fair valuation when paid, the claim may fail, and pay for work actually performed may count as value. Approving members who relied on proper financial statements also have a defense under NMSA § 53-19-27(A).
How North Star Law Firm Can Help
North Star Law Firm works both sides of this problem in the District of New Mexico. For creditors, it weighs involuntary petitions and handles the Chapter 7 case within its bankruptcy practice. It also defends members through its preference and clawback defense work and advises owners on distributions through business entity selection planning.
Phillip Zagotti, JD/CPA, is admitted before the United States District Court and Bankruptcy Court for the District of New Mexico, and brings a CPA’s read to the solvency numbers behind member distributions. The firm works alongside New Mexico-licensed counsel on state-law questions. Members may also want to read what happens when a trustee sells clawback claims. To discuss your situation, contact North Star Law Firm.