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  1. #1

    Default Fraud in a Fiduciary Capacity

    My question involves bankruptcy in the state of: Delaware

    I am involved with a franchisor that has filed for Chapter 11. The plan was accepted. The case has been closed. It now appears that some elements of fraud may have occurred. The company's attorney is claiming that the liability has been "discharged". I understand that Sec. 523 prohibits this, yet, the 60 -day statute has run. Other than using the equitable tolling doctrine how do you object to this discharge?

  2. #2
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    Default Re: Fraud in a Fiduciary Capacity

    You hire yourself a lawyer who can review all the relevant case details that we can't see from here and have him file the appropriate petition with the court.

  3. #3
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    Default Re: Fraud in a Fiduciary Capacity

    That was more blunt than I might have phrased it but, yes, your situation is not one that can be addressed in the abstract based on such a small amount of information, and you will need to consult a lawyer for the analysis you require.

  4. #4
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    Default Re: Fraud in a Fiduciary Capacity

    Quote Quoting Hawthorne2002
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    The company's attorney is claiming that the liability has been "discharged". I understand that Sec. 523 prohibits this
    You need to actually read 11 USC 523. It's very first words. . .

    "a discharge under section 727, 1141, 1228(a), 1228(b) or 1328(a) of this title does not discharge an individual debtor from any debt. . ." (emphasis added).

    Sorry but 523 does not apply to "the company".

    Des.

  5. #5

    Default Re: Fraud in a Fiduciary Capacity

    thanks for your help. Is there any section of chapter 11 that does not allow a company to discharge debt/liability through acts of fraud in a fiduciary capacity?

    Thanks!!!

  6. #6
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    Default Re: Fraud in a Fiduciary Capacity

    Quote Quoting Hawthorne2002
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    thanks for your help. Is there any section of chapter 11 that does not allow a company to discharge debt/liability through acts of fraud in a fiduciary capacity?

    Thanks!!!
    Without the context, its nearly impossible to answer that question.

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    Default Re: Fraud in a Fiduciary Capacity

    Quote Quoting despritfreya
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    You need to actually read 11 USC 523. It's very first words. . .
    That's a very important point to raise, particularly in light of the specific reference to that statute. However, I'm not clear on whether the alleged fraud occurred in relation to a debt that was held to be discharged, if the allegation is that fraud occurred within the bankruptcy proceeding itself (and, if so, whether the allegation is of intrinsic or extrinsic fraud), or both.

  8. #8

    Default Re: Fraud in a Fiduciary Capacity

    thanks again. The company was in charge of an Advertising Fund. Each franchisee was to contribute a portion of sales to the fund. The fund was designed to produce advertising materials for the franchisees. It has come to light that the company may have diverted money from this fund for uses other than what was intended. The company then filed for Chapter 11 . The Company claims all debts ( including any possible debt arising from its misuse of Advertising Fund dollars) has been discharged.
    In my view, this is essentially "discharging fraud". I do realize the Sec 523 deals with "individuals". Certainly there must be a provision that disallows companies from the same act?

    Thanks Again,



    Thanks!!

  9. #9
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    Default Re: Fraud in a Fiduciary Capacity

    I think you're going to have a hard time arguing that the advertising fees not resulting in advertising is "fraud" any more than any other debt.

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