Summary
The Nevada Supreme Court answered a certified question from the United States Bankruptcy Court for the District of Nevada concerning the scope of the exemption for stock in closely held corporations under NRS 21.090(1)(bb) and NRS 78.746. The court held that a debtor may exempt stock in qualifying corporations, but the stock’s economic interest remains subject to a charging order, while the debtor retains the noneconomic interest. The court also concluded that NRS 78.746(2)(b) preserves other applicable exemptions without creating a complete exemption from the charging-order remedy.
Topics
Practice areas
Questions Presented
- Whether NRS 21.090(1)(bb) permits a Chapter 7 debtor to exempt his entire interest in stock of a corporation described in NRS 78.746(2).
- Whether the economic interest represented by that stock remains subject to the charging-order remedy in NRS 78.746(1).
- Whether NRS 78.746(2)(b)'s preservation of exemptions applicable to stock makes the stock exemption complete and precludes a charging order.
Holdings
- NRS 21.090(1)(bb) does not provide a complete exemption of stock in a small, closely held corporation. A debtor may exempt stock in corporations meeting the criteria of NRS 78.746(2), but the exemption is subject to the limitations set forth in NRS 78.746.
- Stock exempt under NRS 21.090(1)(bb) may still be subject to a charging order under NRS 78.746(1). The charging order reaches the debtor's economic interest, including distributions and dividends, while the debtor retains the noneconomic interest, including management and participation rights.
Key quotations
“We conclude that under NRS 21.090(1)(bb), a debtor can exempt his stock in the corporations described in NRS 78.746(2), but his economic interest in that stock can still be subject to the charging order remedy in NRS 78.746(1).” (1)
“We hold that NRS 21.090(1)(bb) does not provide for a complete exemption of stock in small corporations.” (7-8)
“We conclude that based on a plain reading, NRS 21.090(1)(bb)'s language exempting "[shock of a corporation described in subsection 2 of NRS 78.746 except as set forth in that section" (emphasis added) means that a debtor can exempt stock in the corporations described in NRS 78.746(2), but his economic interest in that stock can still be subject to the charging order remedy in NRS 78.746(1).” (10)
Factual background
Ernest A. Becker filed a voluntary Chapter 7 petition and listed stock in Ensworth Corporate Stock valued at $1,362,000 and stock in Eagle Rock Gaming, Inc., valued at $219,000. He claimed his entire interest in both corporations was exempt from the bankruptcy estate under NRS 21.090(1)(bb). Creditors, interested parties, and the bankruptcy trustee objected, contending that the statute exempted only his noneconomic interest while leaving distributions and dividends subject to a charging order.
Procedural history
Ernest A. Becker filed a voluntary Chapter 7 bankruptcy petition and claimed his stock in two closely held corporations as fully exempt under NRS 21.090(1)(bb). Creditors, interested parties, and the bankruptcy trustee objected, arguing that the exemption protected only Becker's noneconomic interest and that his economic interests remained subject to a charging order. The bankruptcy court certified the statutory-interpretation question to the Nevada Supreme Court, which accepted and answered it.
Remand instructions
None stated. The court answered the certified question and did not remand the matter.