If you are paying personal expenses from a corporate account, you may be liable for corporate debt.
Some business owners can’t help but get in their own way. For example, take the business owner who rings up debt and uses corporate assets to pay personal expenses. They believe that status as a corporation shields them from personal liability for corporate debts.
And let’s say that you recovered a judgment against a corporation. As a judgment creditor in New York, you can subpoena their financial institution records and more. By subpoenaing the corporate bank records, you can see checks issued from the corporate account.
As part of judgment enforcement efforts, your NY collection attorney issued a subpoena to the debtor’s bank. The subpoena requires the bank to produce certain documents relating to your banking relationship. The list includes a transcript of the account. Copies of the checks written on the account for the past six months are included. This reveals who is getting paid from where.
Is the owner paying personal expenses from their corporate account?
How would you know? And, how does knowing assist you in collecting your judgment against the corporation?
Should it turn out the business was paying personal expenses for the owner of the corporation, the owner is now liable for corporate debt.
A review of the checks issued revealed that the owner(s) of the company, the signatory on the account, had been paying more than the expenses of the company. They issued checks on the corporate account to pay personal expenses as well. Examples would be a home phone bill, personal credit card bills, utility bills, loan payments and more.
Having the documents in hand that prove the owner used the corporate account for personal use gives rise to a personal liability of the corporate debt to the individual.
NY recognizes that incorporation shields officers and owners from corporate debts.
When there is abuse, and an owner or officer of the corporation disregards the separation between corporate and individual status by using corporate funds for personal use, there should be a remedy to creditors. The individual is treating the corporate assets as their own and should not have the protective shield of corporate status. And that means there is a cause of action against the owner or officer individually.
The judgment creditor must make an application to the court to pierce the corporate veil. This is to hold the owner or officer of the corporation liable for the debts of the corporation. The creditor would have a valid claim against the owner for the corporate debt simply because the owner had been using corporate assets for their own benefit. The individual can now be found liable for the corporation’s business debt. This is the result of having paid personal expenses from the corporate account.
If you believe that there has been interference with your collection efforts because the owner of the company has used their business account to pay personal expenses, get in touch with us to review your collection rights and options.