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legalgems
legalgems, Lawyer
Category: Legal
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I own a clothing business and have been selling goods to a

Customer Question

I own a clothing business and have been selling goods to a client for years. They have defaulted on payment and now in the process of selling the business to another party. They have sent agreements out to all parties that are owed money. Basically by signing you will receive 40% of what they owe you and then have no legal recourse from that point on. I want all my money so will be taking them to small claims court but not sure about the following. What if I start and by the time they are served the company has been sold. I have 3 addresses and contact info however what if they are not valid by time this goes thru? Basically I don't want to start the process if they disappear, or the owners have changed and this won't apply.
Any advice would be beneficial. THANKS Andrew
Submitted: 10 months ago.
Category: Legal
Expert:  legalgems replied 10 months ago.

Is the company an LLC, a partnership or incorporated?

Customer: replied 10 months ago.
incorporated
Customer: replied 10 months ago.
An added bit of info is that the deadline for signing this agreement is May 31st
Customer: replied 10 months ago.
hey there, making sure you're still there :)
Expert:  legalgems replied 10 months ago.

I am sorry; I have been trying to download a certain case that may pertain to the fiduciary duty but am unable to access the case for some reason;

Basically if the agreement between the parties provides for assumption of the debt, then the new corporation is liable for the debt. Otherwise, the judgment debtor would need to pursue collections from the corporation.

This can be done in a few different ways:

1. If the corporate veil was pierced, then the directors can be held liable for any amount that is owing. This is most often seen when the corporation is a separate entity in name only and formal requirements are not complied with.

2. many corporations will maintain a bank account so that bills can be paid (ie rent, utilities, taxes, creditors). This can be levied against - more information on that here

3. if the owners sold off the property and retained the assets, that would be a potential fraud issue, along with a possible breach of fiduciary duty;this would also serve as a basis to sue the directors directly. However, the state does maintain a fraud compensation fund for judgment debtors - that information is here - please note there are strict guidelines and requirements to go this route. It is the 2009 CA case Berg v Berg Enterprises that imposes a fiduciary duty on the directors of a corporation - I have been trying to locate a non copyrighted source for you to view but am unable to do so however you can google it and review that case.

I could not find any authority which would allow a small claims court to issue an injunction against the sale of the business until the judgment debt was satisfied, however, that is because only appellate cases are published and serve as precedence, so small claims cases are rarely appealed to that level (due to the fact that a small claim case must be under $10,000 and that does not justify the expense of the appellate process)

Expert:  legalgems replied 10 months ago.

Thank you for using Just Answer.
I hope the information provided was useful.

Here is a link to the bar association's legal referral site:
http://apps.americanbar.org/legalservices/lris/directory/

Should you have further questions please post here; otherwise kindly

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