Legal Question in Credit and Debt Law in California

I have a debtor that refused to pay for services provided. It's a CORP entity formed in Delaware and registered DOB in California. Recently I have found out that the business was SOS suspended and then forfeited all while he was still doing business with my company and receiving services. Now I have turned him over to debt collectors and he claims to the debt collection agency the business was closed and he does not own anything. As far as I know, SOS forfeited does not give a company “closed” status nor protection from creditors, according to SOS a business must first revive itself from forfeited state and then properly close by certifying to FTB that he has no business activities, liabilities, assets, and no creditors/debtors. In order to prevent the business owner from taking on more debt from other unaware parties and to not let him close the business entity without paying back his debts I would like to file a UCC1 statement indicating that this business has defaulted on his payments and own substantial sum of money. Is it something I can do in my position and how else can I prevent the debtor from "silently" closing his business with SOS/FTB to avoid paying back debts?


Asked on 5/03/22, 2:47 pm

1 Answer from Attorneys

Timothy McCormick Haapala, Thompson & Abern, LLP

The FTB/SOS suspension does nothing to stop him from closing his business. It just blocks him from ending the existence of the corporation. Which is all irrelevant anyway because closing a corporation without paying its debts doesn't protect it from creditors unless it goes through liquidation bankruptcy. Similarly, you can't file a UCC1 unless you entered into a credit transaction that allowed you to place a lien on property and equipment or other assets of the corporation. A UCC1 is just notice that the debtor has given a security interest to assure payment of a debt. It's not something you can file after the fact.

The only recourse you have left is to sue the corporation and the owner for the debt, possibly fraud, and if you think he raided the corporation of its assets before stopping operations, you can sue for fraudulent conveyance, which is the legal term for transferring personal or business assets to other people or businesses leaving the business or individual unable to pay their debts. You can sue both the person who transferred away the assets and the person or company that received them. Since you don't mention the amount owed, there is no way to tell if it is worth all that litigation.

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Answered on 5/15/22, 5:52 pm


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