Legal Question in Business Law in California
Can a corporation hide behind a false ''Bankrupt'' claim
The California corporation that I was working for claimed that they were filing bankruptcy because of failure to obtain additional venture capital. About 45 employee's were laid off and aproximately 15 retained to assist in closing down the company. The assets of the company were sold and the retained employees became employees of the new company. The company never filed bankruptcy. I argued and won a judgement against the company for breach of employment contract. How do I collect on my judgement since the assets are gone? Were the assets liquidated legally? Can individuals be personally liable for fradulent claims of ''bankruptcy''?
3 Answers from Attorneys
Re: Can a corporation hide behind a false ''Bankrupt'' claim
This can be a daunting task. How much was the judgment? Is it worth the effort?
Call for a free consultation if you want to explore this.
Re: Can a corporation hide behind a false ''Bankrupt'' claim
Your question is best answered by California counsel because your claim will be determined by Ca. law.
Re: Can a corporation hide behind a false ''Bankrupt'' claim
As to assue #1, a statement of intent to file bankruptcy would be fraudulent if several criteria are met. First, the statement must come from someone in a position to cause the filing, such as a director, the president, etc. Second, the statement must have been false when made; in other words, there is no foul if the company's officials just hadn't yet made up their minds, or changed their minds. Also, you would have to show that your financial injury resulted from reliance upon the statement and that such reliance was reasonable.
As to #2: If the assets were transferred with intent to hinder, delay or defraud your collection of a judgment, the transfer may violate the Uniform Fraudulent Transfers Act. A lawyer can assist you in reviewing the facts and applying the law. If the transfer is fraudulent, it can be set aside to the extent necessary to satisfy your judgment.
An alternative is to seek payment from the purchasing corporation. They may cooperate sice they could also be used under the UFTA.
The salew transaction might fail to comply with the Bulk Sales laws, Calif. Commercial Code sections 6101 et seq., designed to protect creditors in asset-acquisition transactions. There are many loopholes in this law, however.
Finally, you could pursue the directors of the selling corporation personally. There is some case law that holds that (despite the corporate veil) the directors or other persons in charge of distributing a liquidating corporation's assets are acting as trustees for the creditors, and failure to determine who the creditors are and to fail to pay them (if funds are available) is a violation of their duties as trustees.
In any event you would need a lawyer's direct involvement and the question arises whether that is worth the potential recovery.
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