If you have a claim against a business that no longer exists, you may wonder whether you can sue them. After all, they do not exist. How can you sue something that is not there?
First understand, whether the company is merely out of business or is inactive, or it has been properly dissolved, are legally speaking, two different things. Unless a company has been properly dissolved and its affairs have been properly wound up, that enterprise still exists as an entity. Absent a proper, orderly dissolution, you can take legal action against the company for things like unpaid debts, a breach of fiduciary duty, fraudulent conveyances, and other issues.
Suing a Business That No Longer Exists
Depending on the specific circumstances, you may commence a lawsuit against a business that is no longer in operation. If a business has begun wind-up procedures but has not been formally dissolved, that entity still exists, and can be sued. Failure to properly dissolve is fairly common and can arise because of not filing the paperwork, notifying creditors, or taking the other measures required during windup procedures. Entering into a new contract during the dissolution process can result in shareholders incurring personal liability.
Reasons to Sue a Business That No Longer Exists
Several reasons exist that a business that no longer active and in proper form might be sued. For example, the business owes you money. You might also have a claim to pierce the corporate veil to hold a shareholder personally liable. Other reasons a closed business may be sued can include:
- Outstanding debts that haven’t been paid
- Fraudulent conveyances
- Breach of contract matters
- Breach of fiduciary duty of shareholders or directors
- Fraud or misuse of company funds
- Failure to follow proper windup procedures
Whether you can take legal action against individual shareholders and pierce the corporate veil depends on whether the company has been properly dissolved. Although corporate entities are typically separate and distinct from those who own them, courts may hold owners or shareholders personally liable in certain cases involving fraud, commingling of funds, or other wrongdoing. However, if proper formalities were followed during the dissolution and wind-up process, the shareholders might still be protected from personal liability for other matters.
Collecting a Judgment from a Business That Has Closed
Suing is one thing. Collecting is another.
Obtaining a judgment from a business that is defunct is only half the battle. Collecting on that judgment is another matter. While collecting on a judgment from a business that no longer exists can be challenging, it’s crucial to understand the legal conditions under which the company no longer exists. If the dissolved company has not completed the windup process and still has assets, a judgment collection action can proceed against them.
In certain cases, a creditor may collect a judgment from the company’s owners or shareholders, even if the business is no longer in existence. If the company has no assets, the owners of the dissolved company may be liable up to the amount that they received as a distribution when the company dissolved.
Contact an Experienced New York Business Law Attorney
If you’re seeking to sue a business that is no longer in existence, it’s vital to have an experienced business law attorney by your side who can evaluate your case and work to obtain the best possible results. Offering reliable representation and high-quality legal services, Brinen & Associates assists clients with a wide variety of business matters. Call (212) 330-8151 or send us a message to learn more about how we can assist you.