Legal Question in Business Law in California

Unless the parties can resolve the dispute among themselves, they'll get the answer from a judge or jury in the civil case they'll need to bring concerning the winding down of the company, distribution of assets, payment of debts, defense of claims, etc. Without knowing all the facts, issues, defenses, etc., no one can give you intelligent informed advice. Someone who has filed BK has also turned his claims for payment over to the BK court, so that court will also be involved in resolving this. If this is in Southern California court jurisdiction, and if the amount in dispute is worth hiring counsel to fight, then feel free to contact me if serious about doing so.

Assuming for now that this is a California corporation, the sequence and priority of payouts in dissolution and liquidation will be governed by the Corporations Code, primarily sections 2004 and 2005. Section 2009 addresses remedies for improper distributions. Other states probably have similar provisions.

Basically, the law says that creditors must be paid in full, or payment provisions made, before the shareholders get anything.

There are a few court decisions holding that a director, president, etc. who is also a creditor (because of unpaid salary, having made loans to the corporation, or for similar reason) is not an ordinary creditor and has a lower priority than non-insider creditors. There are also decisions going the other way, saying that an officer-creditor is entitled to a ratable distribution along with the other creditors. Either way, the president/creditor is still entitled to be paid before distributions are made to shareholders who are not creditors. Holders of the common stock are absolutely last in line.

I agree with Mr. Nelson that the personal bankruptcy of the broker/president gave control of his claim against the corporation to the bankruptcy trustee.