QUESTION

Can creditor recover assets from a dissolved business?

Asked on Jul 22nd, 2014 on Litigation - New York
More details to this question:
A retailer based in New York State has signed a long-term leasing agreement for a printer/computer. This lease has no personal guarantee or social security number attached to it. The business is no longer in operation and thus the business owner had since defaulted on the lease payment. Can the leasing company legally sue this dissolved business and retrive the asset? In addition, can the leasing company sue the person who was responsible in communication? Does the person needs to appear in small claims court?
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1 ANSWER

Appellate Practice Attorney serving New York, NY
Let's start with the easiest first.  If the contract was with the business (which I will assume was a corporation, llc, or other independent entity), the individual employees and shareholders of that business entity generally have no personal liability under the contract.  You can sue the business entity (although you say that the business was dissolved, nothing in the rest of your question supports that conclusion; just because a corporation goes out of business, doesn't mean that it no longer exists, any more than the fact that a person goes out of business means that the person is dead), but it will be difficult to collect from it even if you are awarded a judgment (which, based on the facts you've stated, you should be.)  However, if you get a judgment against the business entity, you may be able to collect, even if the corporation has no assets left, by tracing the corporation's transfers.  For example, let's say the corporation sold all of its remaining assets and distributed the proceeds to its shareholders, rather than paying creditors.  That would be a fraudulent conveyance, and, to the extent that the corporation owed you money, you can recover that money from the shareholder/recipients.  If the corporation had no assets, however, and didn't make any improper distributions, you will probably never collect on your judgment. One other factor you should consider is whether the business entity had any other creditors which had priority over you.  If so, it may be pointless for you to sue the entity, especially if those other creditors held security interests in the business entity's assets. The above refers to money damages.  With regard to gaining possession of the equipment, presumably the equipment lease provides for repossession of the printer/computer in the event of a default, and you should be able to enforce that provision in court to gain possession of it.  Hopefully, you have also recorded a UCC security interest in the printer/computer to put the world on notice of your interest in it, so that your rights would take precedence over anyone who bought the equipment from the lessee.  
Answered on Jul 22nd, 2014 at 9:39 AM

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