Legal Question in Credit and Debt Law in California
Subordinate ''Suspended'' Corporation Debts
If a corporation sells off all assets and thereby also destroys all revenue streams, what happens to debts and other liabilities of the corporation, and its subordinate, (still) ''suspended'' corporations. In this case the president was not party to the debt incurred by the prior subordinate corporations, as she came into the picture after the debts were incured. She came into the corporation as an executor for the majority shareholder's estate and she caused only the primary corp. to be reinstated. She brought the assets of the many suboprdinate corporations into the primary corporation, however, she did not take the subordinate corporations out of their suspended status. The minority shareholder was and continued to be an officer as there was no one for the position. Who will be held liable for debts? What should be done if one believes an friend is being subjected to liability by a potentially improper sale? The lawyers for the corporation are pushing for the assets sale without the simultaneous sale of the ''active'' corporation. Do the lawyers have a fudiciary responsibility to insure that these assets are not sold out from under the corporation, as opposed to requiring the assets to be sold with the corporation?
2 Answers from Attorneys
Re: Subordinate ''Suspended'' Corporation Debts
You seem to have some pretty confused preconceptions. The whole reason people form corporations is to escape personal liability. There is nothing wrong with a corporation selling all its assets, so long as those assets are sold for fair market value and so long as an attempt is not made to defraud creditors. In other words, so long as something is left for the creditors, it will be very difficult for the creditors to go after anyone personally. If, however an asset is transferred for less than fair market value, then the transferee may be looking at a lawsuit filed by a creditor to transfer the asset back to the corp. It sounds to me your corp is doing exactly what it should do: sell all its assets and pay the creditors what it can. The fact that you stand to gain nothing is really sad, but considering the fact that your stock probably has a value of zero, the corporation and its other officers owe you that much of an obligation. Should you take any of the assets of the corp now (i.e. money) the person who would be sued could be you. You are in a messy situation. My recommendation is to turn in your resignation and ask for your last paycheck. OF course, I do not have all the facts, so I would strongly recommend you to consult with me further on this issue in order to insure your rights are being protected.
Re: Subordinate ''Suspended'' Corporation Debts
This question raises many potentially complicated issues. The short answer to most of the questions is "it depends." Many more facts are needed. As a general rule, an officer of a corporation is not personally liable for the debts incurred by the corporation. There are exceptions, of course, and the legal theories which constitute those exceptions are too numerous to go into here in such a limited space. In short, however, in the absence of a written personal guarantee, it is generally difficult to attach personal liability to an officer or director of a corporation for the debts of the corporation.
If fraud or collusion has occured, then there may be other ways to attach liability.
You should seek out the advice of an attorney competent in debt enforcement.
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