Deal With a Creditor of an Insolvent Dissolved LLC

[poohbah]

My LLC was formed and dissolved in New York. We notified creditors of the dissolution. One unsecured creditor made a claim that 15 months remained on contract and that the LLC owes for those 15 months. However the LLC is insolvent, no distributions were made, No assets remain. How to handle this?

[KeyWestDan]

First, they have a duty to reduce their loss on said contract. If it is for space, they need to try to rent the space. If it is for equipment, they need to lease or sell the equipment. They must make good faith attempts to reduce their claim. They can't sit back and make that claim in any court.

Secondly, send them a letter telling them the LLC is dissolved and has no assets. Tell them that no assets were distributed. Tell them there is no bankruptcy to make a claim against. A single unsecured creditor can't force a bankruptcy even if the LLC were not dissolved. I don't see anyway they could do anything now. Technically a corp can be sued for two years after dissolution but that makes sense only if there is something distributed to owners to go after. They can't go after the individual owners, that is the whole point of an LLC or Corp.

Tell them to go whistle Dixie.

[SChinFChin]

My LLC was formed and dissolved in New York. We notified creditors of the dissolution. One unsecured creditor made a claim that 15 months remained on contract and that the LLC owes for those 15 months. However the LLC is insolvent, no distributions were made, No assets remain. How to handle this?

I'm in NY. I have formed under an LLC that terminated operations. The business was sold.

About six months before the cessation of operations, we had a serious accident, with a worker injured. Though he had workman's comp, not allowed under law to sue the employer, my attorney advised many chose to sue anyway. Around that time, we were notiifed by the worker's attorney they plan to sue.

My attorney figured based on the injuries, any suit would involve a minimum of $1,000,000. He further looked into the issue of LLC dissolution, and advised me that if I dissolved the LLC with lawsuits pending and debts outstanding, that the managing member would become personally liable. He advised me to keep the LLC open to maintain the liability shield.

What I did was I filed the "final tax return", and I have the option of paying LLC fees as a "defunct entity", with fees of $100.00/year going forward. There's a checkbox on the form that says "LLC not conducting business", or something like that.

My attorney further advised that I can save myself the fees if I just don't pay them, and in two years time, with no payment of fees, the state would do a "dissolution by proclamation". He says it usually takes 3 or 4 years as it takes time for the state to catch up on it's paperwork. At this point, I can choose to pay the fees to maintain the liability shield, the LLC, or just let the dissolution go forward.

At this point, I would suggest you consult an attorney to see if it makes sense to have the LLC file bankruptcy. If it was me, I would've kept the LLC open, close all the bank accounts, and even if the creditor obtained a judgement against the LLC, it's meaningless, as there are no assets to attach.

On the other hand, if the LLC is dissolved, some creditor comes after me personally, my attorney advised I can reconstitute the LLC, but it'll be more costly.

[poohbah]

Well, the LLC is already dissolved. From what I understood, there is no way for a managing member to be personally liable so long as they always kept everything by the book and didn't engage in any fraud to avoid the creditors claims. For example, the managing member did not receive any disbursements; there was only a small sum of money in the bank account (less than $1000) which was to be used for lawyer fees to dissolve the company. Isnt it true that so long as there was no mingling of the LLCs affairs with the personal account/business of the managing member, that person can't be held personally liable for the LLCs issues?

[SChinFChin]

Well, the LLC is already dissolved. From what I understood, there is no way for a managing member to be personally liable so long as they always kept everything by the book and didn't engage in any fraud to avoid the creditors claims. For example, the managing member did not receive any disbursements; there was only a small sum of money in the bank account (less than $1000) which was to be used for lawyer fees to dissolve the company. Isnt it true that so long as there was no mingling of the LLCs affairs with the personal account/business of the managing member, that person can't be held personally liable for the LLCs issues?

I never comingled my funds either. I'm just mentioning my attorney's advice to me on my duties in the process of "winding up" operations, particularly when there are NO FUNDS left to pay the bills, and creditors are looking for any excuse to sue me personally, waiting for me to make a mistake. Right now, I did not dissolve the LLC, it's just a paper entity, with no assets, and creditors if any getting judgements will have nothing to attach.

At this point, just advise the creditor you are dissolved, and see what they say. In my case, my attorney figured someone after $1,000,000 may not quietly go away.

I said the same things you said to my attorney, but I figured if I paid him for advice, why am I arguing with him. He told me if I don't beleive him, he'll be happy to write an opinion after doing research, and cite refereneces to the law, and precedents, costing around $1,000.00 in work. I thought about it, and figured I'm a thousand ahead just not dissolving the LLC.