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Business Debt/Business debt after dissolution

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Expert: - 12/10/2010


Question
Hi,
I worked for a medical equipment S corp in Georgia that has recently dissolved.  During my employment, I tried to help the owner by loaning money to pay payroll and order equipment.  The total added up to over 35,000.00 over the 4 years that I was there.  The owner signed a Promissory Note for the total of the debt.  The promissory note was not in the owners name, but in the corporation name.  The owner was supposed to start making payments 8 months ago but has not made any attempts to pay anything.  I have contacted a lawyer and he told me today that the owner has dissolved the corporation 2 months ago.  I started reading about dissolving a corporation and it looks like I should have been notified of the pending dissolution and that he should have satisfied debt before going forward with the dissolution.  
I would like to know where I need to go from here.  Is there any legal recouse that I can take.  

Answer
Kevin
You are correct in that the corporation had a duty to notify creditors of the dissolution and this might be the only way to attempt to force a settlement – demonstrating that the owner did not treat creditors equally.  However, you will have limited ability to collect or enforce the promissory note.  Based on your description, it sounds like this was an unsecured debt, meaning that you did not file a UCC with the Secretary of State of Georgia?  If so, then the ability to enforce the note is that much weaker.  

There is one possible means of applying pressure and it is a very new approach.  When a creditor is not paid, the debtor has “gained revenue” equal to the amount of the debt not collected (the government was looking to offset the business expense declared by the companies writing off the bad debt, so they moved that money over to the debtor's side).  So in your case, this is $35,000 PLUS interest, PLUS penalties.  So the owner now has a large amount of money that he will have to pay taxes on.  You can talk to an attorney about turning the owner in to the state for tax fraud – since he will still need to file taxes and you and I both know that this will not appear on his corporate return.  That would be the approach to take if you cannot get anything out of him.  But remember, this is a brand new area and I don’t know all the ins and outs.  

Don’t forget that you can declare this as a loss on your taxes and can carry that forward for a number of years.

Best of luck,
Michael

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Michael Fay

Expertise

My focus and specialty is in credit, so that the risk of the debt itself is minimized. This means understanding it, predicting it, and helping to correct it. Having worked in contracts & credit, I have also worked with all of the related documents such as Guarantees (personal and corporate), and Security Agreements (aka UCC’s or “liens” – but I caution you in using those interchangeably).

Experience

I have a broad background with more than 15 years in the credit industry. Ten years with Dun and Bradstreet, first as a field reporter creating reports, then in customer service, finally I served as the credit manager designing risk models for many national and international customers through D&B’s Outsourcing function. Five years with another publicly traded firm where I created the credit department and then served as credit manager for North America. At both companies we used both business and consumer data. You probably know that both business and personal credit have scores; what you might not know is how many different types of scores there are. I am familiar with and have used many different scores in each. Also be aware that each credit type (business & personal) is unique with different processes and different time frames. I have served on the board of directors for companies in many states and still serve in some capacity in a few. I contribute to credit publications and work with the non-profit arm of the SBA called SCORE.

Organizations
ACA International * NACM * Credit Risk Managers * SCORE (SBA)- Counselors to America’s Small Business * Payment Card Industry Network * PaymentSource.com * D&B Alumni * Psi Chi, National Honor Society for Psychologists

Education/Credentials
BIS in Business and Psychology, University of Minnesota * MBA is still in progress (on-line)

Awards and Honors
State of Colorado - State finals in Accounting and Advanced Accounting. * D&B Leadership Winner (3 times) * D&B Leadership Finalist (3 times) *

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