Legal Question in Credit and Debt Law in California

Re: Liability of a director of a S corp

Generally, a corporate officer can be held liable for the debts of the corporation under certain circumstances. This liability is known as "alter-ego" liability, and depends on a number of factors, including whether the corporation has followed all of the "corporate formalities," and whether the officer(s) have comingled their funds with the funds of the corporation, among others.

Whether your "client" can take any type of legal action, and what action it can take, depends on what the debt was for, and whether it stems from a contractual obligation. If the debt arose as a result of a contract, and the corporation has breached the contract (i.e, has failed to pay for something it agreed to pay for), your "client" can sue the corporation (along with the corporate officers and shareholders based on the "alter-ego" doctrine) to recover the debt.

How any lawsuit from your "client" will impact the corporation and/or the officers, depends on what the corporation and/or officers do in response to the lawsuit. If either the corporation or the officer(s) fail to respond to the complaint after being served, a default judgment can be entered against them for the amount claimed by the "client."

A defendant generally has 30 days (at least in California) to answer a complaint once it has been served. If you have been, or are in the future, served with a "Summons" and a Complaint, I suggest that you immediately seek the services of an attorney. If you fail to respond to the lawsuit by filing an answer or other responsive pleading with the court, you risk losing your rights to defend the lawsuit.

Ultimately, if the plaintiff/client obtains a default judgment, that judgment can be enforced in a variety of different ways.