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  1. #1
    Join Date
    Sep 2009
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    Default Business Closed Down, Owes Me Money

    My question involves business law in the state of: California

    Hello,

    I am a supplier to several large restaurants in Los Angeles County. Recently, one of my long-time clients have gone out of business and have refused to pay their last statement prior to closing down. I am very unfamiliar with business law and I want to know if this restaurant is legally responsible for paying off any existing debts that they owe me prior to going out of business. If so, who would be responsible (the owners?) and what steps should I take? Thank you all very much for your help, it is greatly appreciated!

  2. #2
    Join Date
    Mar 2008
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    1,995

    Default Re: Business Closed Down, Owes Me Money

    Quote Quoting vitalemon
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    My question involves business law in the state of: California

    Hello,

    I am a supplier to several large restaurants in Los Angeles County. Recently, one of my long-time clients have gone out of business and have refused to pay their last statement prior to closing down. I am very unfamiliar with business law and I want to know if this restaurant is legally responsible for paying off any existing debts that they owe me prior to going out of business. If so, who would be responsible (the owners?) and what steps should I take? Thank you all very much for your help, it is greatly appreciated!
    First, if the business is incorporated, then the owners are not personally responsible, unless you have a separate personal guaranty. The following assumes the business is incorporated.

    If the owners followed the law to the letter, if there are no funds to pay it's bills, they would file bankruptcy, and then notify creditors of this. At the point, there would be a bankruptcy trustee assigned by the bankruptcy court.

    Often, there is a creditors committee formed, a chairman elected, and he gets to review the overall progress of the bankruptcy. The largest creditor, if you are, gets a crack to head the committee. You will receive notification of the first meeting. I've represented my company on some, but usually others send their attornies, and these committee are headed by experienced bankruptcy attornies, if the debts are substantial.

    Some time later, creditors get a proof of claim to sign, to put down how much they are owed. The form must be completed on time, and then returned to the trustee, or you won't have a valid claim. On receipt of it, the trustee would then dispose of all assets, and then pay off the creditors, secured creditors first, and if any funds remains, then unsecured creditors.

    From the sound of it, you are a "unsecured creditor", unless you did UCC filings for things such as inventory that you supplied.

    I worked in the accounting and credit departments for a large number of companies over the years, and from what I've seen, in these cases, the unsecured creditors either be notified by the trustee that there are no funds remaining to distribute, to cases where they receive a few cents on the dollar. I have never seen a full payment.

    If they do not file for bankruptcy, as some don't, then you are free to sue for payment, but if the business has no assets to attach, then it is meaningless. When they file for bankruptcy, you are not even allowed to file a lawsuit to recover your debt.

    Just to add that in the dissolution of businesses, owners are required by law to liquidate assets, and pay creditors first, before themselves. If you can prove this is not the case, then you can go after the owners for fraud.

  3. #3
    Join Date
    Jul 2007
    Location
    Florida
    Posts
    2,344

    Default Re: Business Closed Down, Owes Me Money

    If it was an employee who placed the order with you then you may not have much recourse against a bankrupt or insolvent corporation. However, if it was an owner who placed the order they may have created for themselves personal liability for the order. They certainly knew if the business had the money to pay or not. When an owner takes an action personally s/he can potentially be sued individually. For example, if I build block walls and a wall falls on someone and kills them, being incorporated may not help me if I built the wall myself. If my employee built the wall then the corporate shield will progect me - usually.

    So, in your case an employee placing an order in the normal course of their duties will not help you much since they would have no way of knowing the financial condition of the business. An owner placing an order they know cannot be paid for might very likely create a personal liability on their part.

  4. #4
    Join Date
    Mar 2008
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    1,995

    Default Re: Business Closed Down, Owes Me Money

    Quote Quoting Bubba Jimmy
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    If it was an employee who placed the order with you then you may not have much recourse against a bankrupt or insolvent corporation. However, if it was an owner who placed the order they may have created for themselves personal liability for the order. They certainly knew if the business had the money to pay or not. When an owner takes an action personally s/he can potentially be sued individually. For example, if I build block walls and a wall falls on someone and kills them, being incorporated may not help me if I built the wall myself. If my employee built the wall then the corporate shield will progect me - usually.

    So, in your case an employee placing an order in the normal course of their duties will not help you much since they would have no way of knowing the financial condition of the business. An owner placing an order they know cannot be paid for might very likely create a personal liability on their part.
    My experience had been when owners go the legal route, filing bankruptcy for the business, eventually they file bankruptcy personally, particularly if they personally guaranteed some debts, especially the lease.

    I had restaurants as customers, and my dad ran one. No small restaurant owner can say with a straight face that every meal is "on the books", any more than a bartender can say he never gave a regular customer a free drink. Even if you go after him personally, you do your debtor exam, you might still turn up empty.

    The best way is to be patient and watch.

    These guys will resurface, and own, or run another restaurant somewhere. That is when you have an opportunity to pounce. The one and only instance where I got paid in full was when I waited after some guy who closed up, got after him after he re-opened another business. At the time, we sold electronics.

    The former store closed after a busy Christmas season, with the landlord and the trade creditors looking for him. The store was empty and cleaned out.

    A year later, a sales rep reported that someone resembling this former owner re-opening at another location, but stocked with our merchandise before even placing his first order. I asked my rep to run back, and get hold of the serial numbers, and note what other merchandise he's carrying.

    On confirming it was our merchandise, I went over, confronted him, and he admitted who he was. At that point, he claimed the other company was dissolved, and I'm dealing with a new company.

    I told him I'm not dealing with a new company, I'm dealing with theft, and I know stolen merchandise from other companies are on the shelf also, rattling off the names of people looking for him. I told him I plan to take the matter up with the district attorney. But I expect to notify a dozen of so other members of our credit association first, who's been looking high and low for him, and tell them where their merchandise can be found. I said "I'm sure they'll be all down here the first thing tommorrow".

    He then asked me if he paid me the full amount he owed me, if I can keep my mouth shut.

    So I got paid about the $50,000 or so he owed me, right then and there IN CASH, and kept my side of the bargain, that is I kept my mouth shut. Yeh, these guys can pay if they wanted to.

    If the OP can hang around, be patient, this guy would resurface somewhere, and in the restaurant business, from health code violations, to illegal alien dishwashers, there's plenty of things an unpaid creditor can do going after a deabeat restauranteer. If fixtures were sold, and proven to be taken from the prior location, then you got theft

    On the other hand, if he filed corporate and personal bankruptcy, then, there's not much the OP can get other than accept the legal payout from the trustee.

  5. #5
    Join Date
    Jul 2007
    Location
    Florida
    Posts
    2,344

    Default Re: Business Closed Down, Owes Me Money

    Most small businesses that cease operation while owing money don't bother to file for bankruptcy. Creditors know that they have no assets if they cease operation. Unless it is a large company with significant assets to liquidate and distribute it is unlikely that there is a bankrupcy involved at all. That is why I recommend evaluating whether there is personal liability on the part of the owner(s). You could be waiting a long time if you wait and see.

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