How JustAnswer Works:
  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.
Ask Dwayne B. Your Own Question
Dwayne B.
Dwayne B., Attorney
Category: Business Law
Satisfied Customers: 32154
Experience:  Practicing for over 20 years and helped a number of businesses with litigation.
Type Your Business Law Question Here...
Dwayne B. is online now
A new question is answered every 9 seconds

I am in need of direction with respect to resolving

Customer Question

Hello, I am in need of direction with respect to resolving corporate debt and possible dissolution of a corporation.
The facts are that an owner of the corporation has filed a personal bankruptcy, some of the debts listed in the personal bankruptcy are both personal and corporate (but were personally guaranteed). The personal bankruptcy has discharged and the case is closed. The corporation has now been sued by one of its main creditors for about $70k. The corp is not in bk, only the owner of the corp filed for bk.
The main goal here is to: avoid as much of the debt as possible and to keep running the business.
Is the owner of the corporation able to dissolve the corporation in order to avoid the corporate debt or is that illegal? I noticed on the dissolution forms in California, one must state if there are outstanding debts and if those have been provided for or not.
A follow up question would then be, if one is able to dissolve the corporation in order to avoid the debt, is that person able to open a new corporation doing the same type of business?
If he can't dissolve the corporation to avoid the lawsuit debt or if he can't dissolve the corporation and restart a new company, then it probably doesn't make sense to dissolve the corporation, but then how does the debt get resolved?
What is the best way to handle this?
Submitted: 3 months ago.
Category: Business Law
Expert:  Dwayne B. replied 3 months ago.

Hello and thank you for contacting us. This is Dwayne B. and I’m an expert here and looking forward to assisting you today. If at any point any of my answers aren’t clear please don’t hesitate to ask for clarification. Also, I can only answer the questions you specifically ask and based on the facts that you give so please be sure that you ask the questions you want to ask and provide all necessary facts. Please note: This is general information for educational purposes only and is not legal advice. No specific course of action is proposed herein, and no attorney-client relationship or privilege is formed by speaking to an expert on this site. By continuing, you confirm that you understand and agree to these terms.

Dissolving the corporation to avoid the debt could be considered fraudulent, although it would be hard to prove. It could also throw the debt onto any officers and/or shareholders. It is even possible that it could put the debt back onto the person that filed bankruptcy since the bankruptcy resolved his personal obligation but this would create a new avenue for the creditor to pursue them although I don't know what the judge would likely do in this situation since I've never seen this set of facts litigated before.

On the follow up question, if the creditor found out about the new corporation then they would probably sue under the theory it is an alter ego of the old corporation and thus liable for its debts.

The corporation could file bankruptcy to dissolve the debt or at least hire the bankruptcy lawyer and threaten to file bankruptcy and try to settle the debt for some reduced amount. That would be the approach that has the least disadvantages and the greatest likelihood of success.

If your question has been answered then I'd offer my best wishes to you and ask that you please not forget to leave a Positive Rating so I receive credit for my work.

Of course, please feel free to ask any follow up questions in this thread. I want to be sure that all of your questions are answered. In addition, once you issue your Positive Rating the question will lock open and no longer time out so you can come back to it anytime in the future if you think of any follow ups.

Customer: replied 3 months ago.
Thank you -- so not going to go with dissolving the corporation because that seems too risky.However, if dissolving would be the only way to go (and not reopen a new business) then do all the corporate debts need to be treated the same or is it possible to just resolve with the one who filed the lawsuit?
Expert:  Dwayne B. replied 3 months ago.

In general, it would be better to treat them all the same, if possible. Treating one differently than the others just opens the door to multiple complaints.

Related Business Law Questions