When A Debtor Goes Belly Up, They Can Still Pay

If you sell materials or lend monies to a corporation which goes belly up, there is a temptation to just give up.  Lots of lawyers and attorneys do.

I don’t and neither should you.

I immediately file suit against the corporation. Why file suit against a corporation on life support or one recently defunct, you may ask?

Tactics.

First, most corporations that have recently closed their doors will not fight a judgment, figuring that since they have nothing to lose, there is no reason to defend.  In some situations, they are correct. However, in many other situations, people do not operate their corporations cleanly, that is, not using their corporations to pay personal obligations and piercing the corporate shell may be possible.

Second, unlike most attorneys, I don’t stop with low hanging fruit. I routinely engage in post judgment discovery looking for a money trail.

Third, I follow the money trail, wherever it goes.

In January, 2016, an out of state investor, after researching our web site, called me. In 2008, she had loaded $100,000.00 to a Massachusetts corporation without the benefit of a formal personal guaranty, which was secured by a mortgage on corporate property.  The recession hit and after approximately a year, the first mortgagor had foreclosed on the property wiping out her second mortgage position.

Once retained I immediately carefully reviewed the paperwork and filed suit against the now defunct corporate borrower. My client’s paperwork had enough documentation that I was able to plead in good faith that a principal of the corporation had personally guaranteed the debt, although the chances of prevailing on that count were uncertain.

I immediately sought ex parte attachments on trustee process and on real estate. The defendants immediately retained counsel who although initially opposed the attachment on the individual defendant wisely agreed to allow a limited attachment as to only one particular property in order to avoid the possibility of the Court granting me an attachment on all properties. I accepted the offer of limited security for the opposite reason—I was not sure that the Court would even allow an attachment on the individual’s property absent a formal guaranty.  As part of the negotiations, I persuaded the opposing counsel to allow a judgment to enter against the corporate defendant in the full amount due including the full amount of interest and attorneys fees.

That’s when the fun began.

Once judgment entered, I subpoenaed the corporate defendant’s books and records which lead to my subpoenaing of the bank records of the corporate defendant. As a result of my diligence, I uncovered that the corporate defendant was paying a promissory note owed by the individual owners of the corporation with no benefit to the corporate defendant.

I then filed a motion to amend the complaint to add the individual owners of the defunct corporation as defendants. I immediately sought to attach their real estate, bank accounts and their ownership interest in several other corporations. Faced with these pending attachments opposing counsel again contacted me and we negotiated a stipulated order which had the same effect as a reach and apply preliminary injunction.

Negotiations ensued. Eventually, the defendants agreed to pay over $125,000.00 to end the case. Although this amount was less than the full principal, interest and attorney fees due, based on the defendants’ retaining of a bankruptcy counsel and my experience with the difficulty of piercing the corporate veil and finding the individual defendants liable, my client wisely decided to accept the bird in the hand.

Without my creative and relentless  pursuit of the defunct corporate debtor and its assets, my client would not have received any of her monies back.

The moral of the story: Never give up and don’t hire an attorney who gives up.