[§428-406]  Limitations on distributions. (a)  A distribution may not be made if:

(1)  The limited liability company would not be ableto pay its debts as they become due in the ordinary course of business; or

(2)  The company's total assets would be less than thesum of its total liabilities plus the amount that would be needed, if thecompany were to be dissolved, wound up, and terminated at the time of thedistribution, to satisfy the preferential rights upon dissolution, winding up,and termination of members whose preferential rights are superior to thosereceiving the distribution.

(b)  A limited liability company may base adetermination that a distribution is not prohibited under subsection (a) onfinancial statements prepared on the basis of accounting practices andprinciples that are reasonable under the circumstances or on a fair valuationor other method that is reasonable under the circumstances.

(c)  Except as otherwise provided in subsection(e), the effect of a distribution under subsection (a) is measured:

(1)  In the case of distribution by purchase,redemption, or other acquisition of a distributional interest in a limitedliability company, as of the date money or other property is transferred ordebt incurred by the company; and

(2)  In all other cases, as of the date the:

(A)  Distribution is authorized if the paymentoccurs within one hundred twenty days after the date of authorization; or

(B)  Payment is made if it occurs more than onehundred twenty days after the date of authorization.

(d)  A limited liability company's indebtednessto a member incurred by reason of a distribution made in accordance with thissection is at parity with the company's indebtedness to its general unsecuredcreditors.

(e)  Indebtedness of a limited liabilitycompany, including indebtedness issued in connection with or as part of adistribution, is not considered a liability for purposes of determinationsunder subsection (a) if its terms provide that payment of principal andinterest is made only if and to the extent that payment of a distribution tomembers could then be made under this section.  If the indebtedness is issuedas a distribution, each payment of principal or interest on the indebtedness istreated as a distribution, the effect of which is measured on the date thepayment is made. [L 1996, c 92, pt of §1]