Establishing Liability Against a Debtor’s Successor Entity
Sometimes a judgment creditor will move to attach assets against a corporate debtor, only to find that the debtor corporation no longer has assets. Now what?
Assuming that the original debtor had assets to begin with, something must have happened to them. They might have been transferred to insiders, such as majority shareholders. They might also have been acquired in an asset purchase transaction.
The liabilities of a debtor entity won’t necessarily follow the assets in the hands of a successor the way they will in a merger. Liability for old debts after an asset transfer will depend on what the debtor received in exchange for the transfer, the notice of prior claims the successor might have had prior to the transfer, and the presence of any so-called “badges of fraud” that would legally support pursuit of the assets in the hands of a successor entity.
Call (617) 367-0606 for advice about successor liability in Massachusetts
Contact an experienced collections attorney at Gannett & Associates to learn whether your claim can survive the dissolution or disappearance of the debtor and follow assets into the hands of a successor entity. In many cases it can, especially when a debtor sells the assets of a business as a going concern instead of filing for bankruptcy.
Our investigation and analysis of the circumstances of the debtor’s transfer of assets can often build a case for liability against a new or different company. The key questions of fact will usually focus on:
- Whether the asset transfer can fairly be regarded as a merger of two companies, regardless of how the parties themselves characterized the transaction
- Whether the successor entity essentially continues the debtor’s business
- Whether the transaction was motivated by the desire to defraud the debtor’s creditors
- Whether the selling and acquiring entities share common principals, executives or shareholders
The dissolution of old businesses and creation of new ones can create a complex shell game for creditors who need to find assets and legal bases for attaching and liquidating them. At Gannett & Associates, our experience with successor liability issues can help your claim survive the disappearance of your debtor and its assets.
For a free consultation with a knowledgeable debt collection lawyer in complex asset recovery cases, contact Gannett & Associates in Boston. We also handle successor liability litigation in Greater Chicago and federal courts throughout Illinois.