Legal Question in Business Law in California

Re: Corporation Debt Collection

1) You need to get the corporation reinstated, it cannot legally act at this point.

2) The corporation can allow an individual to personally collect corporate debts, but the process is not simple -- and there are serious repercussions if it is not done correctly.

I recommend talking to a lawyer about this.

Feel free to email for more information.

Re: Corporation Debt Collection

Your post isn't clear about whether the suspended corporation filed a lawsuit. If so, it cannot proceed without being in good standing. An officer cannot represent a corporation in anything but small claims court. Otherwise, it must have an attorney.

Re: Corporation Debt Collection

And, an attorney cannot represent a suspended corporation in court. So, a suspended corporation can't sue or defend.

Now, back to your question. I think the answer depends upon whether you are the officer or the debtor. If you are asking this question as the debtor that's being presented with a bill or other claim for payment by an officer claiming to hold the claim on assignment from a suspended corporation, I think you have a defense in that you can assert, perhaps successfully, that the assignment, or even the underlying obligation, can be rescinded by you. This is because the contracts of a suspended corporation are not void per se, but are voidable by the other (non-suspended) party.

On the other hand, if you are the officer of the suspended corporation, there is little to prevent you from trying this tactic except the power of the debtor to call your bluff by attacking the assignment or underlying contract.

There is another risk here. The law is unsettled in California as to whether the stockholders, officers, directors (insiders) of a suspended corporation are personally liable on an alter ego (piercing of the corporate veil) theory for the debts of the suspended corporation. I assume it has some. If your deal with the corporation to collect its debts is less than an arm's length transaction, i.e., you are "assigned" the debt for cents on the dollar, you might be setting yourself up for alter ego liability because you'd be eroding the distinction between the corporation and yourself. Same would apply if you were only acting as a bill collector instead of an out-and-out assignee; unless the deal were overall fair to the corporation and its creditors, you could be at risk in a creditor suit on an alter ego or trust-fund theory (money collected by or for a failed corporation must go to non-insider creditors before insiders get any of it).

If the debt owed to the corporation is substantial, the better path may be to apply for revivor and then collect in the normal way, including use of the courts, if necessary.