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Individual Liability for Debts of Insolvent Corporations

Can the shareholder, officer or director of a dissolved corporation be liable to creditors for corporate debts? Yes, under certain circumstances. When an insolvent corporation is discontinuing business and winding up its affairs, it is the duty of its officers, directors and shareholders to treat assets of a corporation as a trust fund and to distribute assets appropriately among its creditors.

A corporate officer or director may be personally liable to creditors for failing to comply with this standard. A corporate creditor may recover against assets transferred to officers, directors or shareholders after a corporation's dissolution. A creditor may assert a claim after the corporation is dissolved.

In these difficult economic times, aggressive actions by creditors and prudent planning for insolvent corporations are a necessity.

Categories: Business Law

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