Consider the following facts. For many years a company provides services to a corporation. The corporation is a small business, owned and controlled by one individual. A substantial balance is incurred by the corporation which the corporation refuses to pay. A familiar scenario is then played out. The owner opens a new corporation in a similar business and dissolves the first corporation. The service provider creditor commences an action against the first corporation. The law suit is ignored by the first corporation. Thereafter, the creditor obtains a default judgment against the first corporation, but is unsuccessful in finding any assets.
The creditor then deposes the owner and requests bank and financial records. These records reveal that after the commencement of the action against the first corporation, the owner caused the first corporation to transfer a significant amount of cash to the new corporation. The owner cannot establish a credible explanation for the transfers. Thereafter, further discovery reveals that the owner has been using funds in the new corporation to pay directly for personal expenses.
Unbeknownst to the creditor, shortly prior to the deposition of the owner, the owner was granted a discharge in bankruptcy. The creditor was not aware of the owner’s bankruptcy filing and the bankruptcy petition reveals that the owner did not list the creditor as having a claim against either the first corporation or against the owner. Continue reading