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Lucy, Esq.
Lucy, Esq., Attorney
Category: Business Law
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Experience:  Attorney
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A founder loan a nonprofit organization $90,000. The loan was

Customer Question

A founder loan a nonprofit organization $90,000. The loan was put into the budget and agreed upon by the board members. Is this considered secured. Also what can be done if won in court that the loan is due but the organization has not enough funds to repay the debt?
Submitted: 2 years ago.
Category: Business Law
Expert:  Lucy, Esq. replied 2 years ago.

My name is ***** ***** I'd be happy to answer your questions today.

A loan is considered secured if there is collateral put up to ensure payment. For example, if I borrow $90,000 from you but give you a lien on my house, then it's a secured debt. Board members approving a loan does not make it secured.

If any of the board members signed a document agreement to be personally liable for the debt, then they are acting as sureties or guarantors and may be sued individually (any or all of them - most people sue whoever they think has the most money).

A person who has a judgment against a company can use it to seize corporate property such as real estate or equipment (like in a restaurant - you can take all the appliances and stuff). It's also possible to put a levy on corporate bank accounts to remove funds. To place a levy on business accounts, contact the bank's Legal Order Processing Department and ask them to help you through the process. You'll need to send a copy of the judgment, but they may have other paperwork for you to fill out. You can use Interrogatories and Requetss for Production of Documents to seek information on the company's assets.

If the evidence suggests that the owners of the company intentionally underfunded the business with no intent of repaying the loan, you can ask the judge to do something called "pierce the corporate veil" and hold the individual members of the board liable. Evidence of that is if you see money going back and forth into the owners' personal accounts, for example, or if you see them making big withdrawals that don't appear to be business related (any owner - it doesn't have to be all of them).

That's a complicated procedure, so if you think it's something you want to pursue, it's a good idea to see if a local attorney can help. They'll take a percentage of what you recover, but may be able to help you get more money than you could on your own.

If you have any questions or concerns about my response, please reply WITHOUT RATING. It's important that you are 100% satisfied with my courtesy and professionalism. Otherwise, please rate my service positively so I am paid for the time I spend answering questions. If you are on a mobile device, you may need to scroll to the right. There is no charge for follow-up questions. Thank you.
Customer: replied 2 years ago.

As a founder who has been voted off the board can we place a bank levy on their bank account for a loan we personally loaned to the nonprofit organization. Also, with the piercing of the corporate veil I don't know if intentional is the word exactly as they just don't fundraise, they knowingly are ignoring bylawys and passed term limits on several accounts. They had approved a monthly loan payment but their was never enough income due to their lack of fundraising. Also, up until now I was also the ED and founder so I wrote checks but I was not going to write a bad check to myself for the loan and cause a bad check for the company. My husband and I bring in over $40,000 per year for the organization but the board members do maybe $2,000 and some bring in nothing even the president!!! He didn't pay for several sponsorships for 3 years.

Expert:  Lucy, Esq. replied 2 years ago.
To place a levy, you have to get a judgment first. You can do that if the company isn't making payments on the loan.

The type of thing you're talking about is a breach of the other owner's fiduciary duty to the company. Essentially, you may be able to bring a lawsuit on behalf of the company against the owners who failed in their obligation to act in the best interests of the corporation. If they know the company has debts and made zero effort to pay them, that's a problem.

A party who's been wronged is allowed to assert multiple causes of action in one lawsuit, so you can argue different theories of liability to see which one(s) the judge agrees with.
Customer: replied 2 years ago.

ok but for a nonprofit charity there are now "owners" per say

Expert:  Lucy, Esq. replied 2 years ago.
I'm sorry - the same principles apply to members of the board. I just get used to using "owners" when talking about small companies. They have a fiduciary obligation to act in the best interests of the charity, and it sounds like they utterly failed to do so.
Customer: replied 2 years ago.

Is there anyway to get a quick judgement for the levy or do we need to get an attorney and go though all of that process

Expert:  Lucy, Esq. replied 2 years ago.
There is unfortunately no way to get a quick levy unless they're willing to sign a consent judgment. To file a lawsuit on your own behalf, you don't need a lawyer, but it may be easier to have one when dealing with all of these issues.
Customer: replied 2 years ago.

Ok thank you so much. Can you please tell my more about the piercing the corporate veil. My husband wants to know more about this. We think this highly applies but we are curious how to present this to an attorney and what evidence we would need to pull together for a lawsuit like this?

Expert:  Lucy, Esq. replied 2 years ago.
Your lawyer would have to get copies of all of the corporate records and go through them. They're looking for things like members of the board transferring money to and from the corporation out of their own accounts, records that show the charity never had adequate capital to fund it's intended objectives, budgets that didn't provide enough income to cover expenses, and things like that.

Piercing the corporate veil is a means of holding directors liable for debts owned by a company. It's not a separate cause of action. You're still suing for breach of contract - it's just possible that you'd be able to collect from the other directors. You can mention your interest when choosing an attorney to see if they're willing to help pursue it.

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