July 16, 2019

Successor Liability

Stempel insolventMany of my clients are self-employed individuals who own and operate a business experiencing financial difficulties.

They often contact me with the idea of forming another company so that they can continue operating from the same address, using the same phone numbers, employing the same staff, and serving the same customers with minimal business interruption.

This is sometimes easier said than done because of the legal doctrine of successor liability.

An example case of successor liability

A grossly simplified example involves clients who own and operate ABC Widget Co.  ABC Widget Co. has a physical plant, equipment, accounts receivable, a sales force, customer base, and the like.  ABC Widget Co. also has a lot of debt. The client tries to solve the problem by forming XYZ Widget Co. and everything goes from ABC to XYZ.

However, maybe the problem is not solved, because one or more of the ABC creditors sues XYZ as a successor to ABC. Forming a new company can be a risk; but, it may well be an acceptable risk. I help clients evaluate and plan for such risks, and defend such lawsuits if they are filed.

Likewise, I work with creditors in bringing such claims against those who they believe have successor liability.

Whether you are a business owner considering re-structuring your business or a creditor trying to collect from a business in transition, call my office immediately.

The benefit of time goes to the one who gets professional advice at the earliest juncture.