Legal Question in Business Law in California

If the restaurant was operated by a corporation, and you did not give any personal guarantees, you are probably safe from creditor claims. There are two possible ways that the creditors could conceivably come after you personally:

(1) On an "alter ego" or "piercing the corporate veil" theory, which basically alleges, and requires proof in court, that you disregarded the separate nature of the corporation by such things as commingling funds, not keeping separate books and records, concealing the fact that the business was incorporated, seriously undercapitalizing the business, failing to hold shareholder meetings and keep minutes, and so forth. The matters have to be sufficiently serious that to recognize the existence of the corporation would be a miscarriage of justice.

(2) It is also possible to attack the shareholders, officers or directors of dissolving or folding corporations on fraudulent transfer theories if the persons in control fail to pay bills while giving themselves preference in the distribution of corporate assets in the liquuidation of the corporation. The idea is that you can't take the antique cash register or the new point-of-sale hardware and software home; you have to sell it and apply the funds to corporate debts.

The biggest problems small-business owners have is with personal guarantees they have made and perhaps forgotten, including company credit cards obtained with personal guarantees. Suits alleging (1) or (2) above are pretty uncommon.

If the corporation has on-going problems with bill collectors, you should probably talk to a local bankruptcy lawyer about using a Chapter 7.