Steve Harms

Wednesday, March 30, 2011

Can I go after the officers of a corporation that owes me or my company money?

Honestly, these are low percentage claims. Only in a very extreme or clear violation of law is a court going to give you a judgment against individual corporate officers through piercing the corporate veil, for example.

Client's often turn over claims against corporations to attorneys with expectations that the corporate officers will be held personally accountable for some "fraud" committed due to under capitalization or some perceived wrong doing. To some clients, ordinary non-payment of a debt is a wrong doing or "fraud".
Michigan courts basically follow the principal that only extraordinary circumstances justify a disregarding of the corporate entity.
Even if extraordinary circumstances exist, there are three requirements to pierce a corporate veil, 1) the corporation must be a mere instrumentality of another entity or individual; 2) the corporate entity must be used to commit fraud; 3) the plaintiff must have suffered some unjust loss or injury. Generally when you are talking piercing the corporate veil, you are looking at something like 1) corporation under capitalized; 2) separate books maintained; 3) separation between the individual and corporate finances; 4) corporation used to support fraud or illegality; 5) corporate formalities have been ignored and the company is a sham.
All of these elements are very difficult to prove to a court's satisfaction...for example, extensive financial information would have to be provided, which is usually not available for any number of reasons including a debtor's desire that the financial details somehow got lost!
When a corporation sells its assets to another corporation, the purchasing corporation is generally not liable for the debts and other liabilities of the seller. Although Michigan case law on successor liability is not extensive, a number of exceptions to the general rule have been recognized. A purchasing corporation is liable for the debts and liabilities of the seller where (1) the two corporations consolidate or merge to form a new corporation without making provision for the obligations of the selling corporation; (2) the purchasing corporation expressly or impliedly agrees to pay the debts of the selling corporation; (3) the new corporation merely continues the selling corporation; or (4) the sale is fraudulent and the property of the selling corporation can be followed to the purchasing corporation.

To determine actual intent for fraud, the court looks at certain badges such as 1) transfer of obligation to an insider; 2) debtor retained possession or control of property which was transferred after the transfer allegedly took place; 3) the transfer or obligation was disclosed or concealed; 4) before the transfer was made, the debtor had been sued or threatened with suit; 5) the transfer was of all the assets; 6) debtor absconded; 7) debtor removed or concealed assets.

Wednesday, March 23, 2011

Tips for Going to Court or Alternative Dispute Resolution (ADR) Hearings

If you plan on going to court on your case, either with a lawyer or on your own, these tips may help you prepare.  These tips apply to both formal court hearings and informal alternative dispute hearings.

* Gather your evidence:
          * Gather all documents that relate to the matter.
          * Gather written statements from witnesses familiar with the matter. If your ADR permits or requires live witness testimony, see if they’re available to testify.
*  Know your case:
          * Prepare a summary of your case. Stress the three or four major points of your case. Don’t read the summary at a hearing. You should be prepared to discuss the issues extemporaneously.
          * Know your case backwards and forwards. Even though you may not enjoy it, that also means learning the other side’s case as well as your own. You should understand your debtor’s claims and defenses, itemize them, study them, and be prepared to discuss each and every one of them in detail.
               *  Be professional:
                     * Keep emotions out of it. Be humble, calm, factual, and believable. That’s not to say you should come across as a robot. Take a look at your favorite legal drama and note some good examples of how to use emotion, voice, and dramatic technique to present your argument while remaining calm, rational, and professional. Maintain good eye contact with the mediator or arbitrator.
                    * Dress and behave professionally. That means both in your actions and your dress. Body language counts, and so do the clothes that you wear. You want to send the message that you take the proceeding seriously. 
                    * Expect to be interrupted. You shouldn’t expect to be able to present a rehearsed speech. Sometimes a mediator or arbitrator takes a very active role, questioning you and interrupting you to require further facts or explanation of your opinion. If you anticipate interruption it’s less likely that you’ll become flustered and more likely that you’ll present a great answer that helps win your case.
                    * Anticipate technical questions. If your case involves technical issues, such as whether a product you sold was properly designed, be prepared to answer highly technical questions. You may need to bring along a witness who’s totally versed on the technical side of the case.
They say that patience is a virtue, and that’s very true in court or alternative dispute resolution (ADR).  Have a dollar figure in mind, but resist the temptation to get to the bottom line too quickly. Just like in settlement negotiations, you usually shoot higher than your bottom line at first so you have room to negotiate downward. ADR works best when both sides accept that there’s room for compromise. If you decide to hold fast to 100 percent recovery as your bottom line, with no negotiation at all, then I’m afraid you’ll probably be disappointed.
Whether you use a professional collection agent or not, it is a good idea to learn the ropes.  Start with a smaller, simpler case, where not too much money’s at stake and the issues are well-defined. Get your feet wet with a case where the stakes are low, and figure out your comfort level (or that of the employee you assign to handle the proceedings).
Although you can handle your own case, you certainly don’t always have to. At times you may decide that you want professional assistance. If you’re involved in a formal arbitration, just as if you were in court, you need a solid understanding of arbitration procedure and the rules of evidence. A professional collection agency or collection attorney can provide assistance by
                           *  Drafting written versions of any agreements that result from the dispute resolution.
                           *  Helping to negotiate from the standpoint of a third party, reducing the effect of personal feelings or animosity that would interfere with negotiations or reaching an agreement.
                           *  Advising you, and suggesting to both sides, what a judge is likely to do based on the facts and issues raised by the parties.

Tuesday, March 8, 2011

Problems with Bad Checks

Although you’re filled with joy (and maybe a tiny bit of skepticism) when you hear “the check is in the mail,” you know that checks don’t always clear the bank. You must be diligent and monitor the flow of checks through your business. Everybody receives a bad check now and then, but how you handle it can make a big difference in your cash flow and bottom line.
Receiving a bad check isn’t a small infraction. It’s a major breakdown of the financial relationship and in your ability to trust your customer. Because the extension of credit is based on trust, bouncing a check goes to the core of the business relationship.
Communicate with your customer immediately upon receipt of a bounced check. Hang on the phone for 20 minutes if you have to or go knock on his door. Express in no uncertain terms that the check has to be replaced with real money within 24 hours or further action will be taken.
If your customer admits the check isn’t going to clear, even if you deposit it a second time, tell him, “I’ll have someone at your door this afternoon to pick up replacement cash or a cashier’s check. What time will it be ready?” Then contact an overnight courier and instruct it to pick up the cash or cashier’s check at the appointed time. When you employ a courier, a cashier’s check is preferable to cash.
Make sure you put out the word to your staff about the change in the customer’s credit status: Anybody who interacts with the offending customer, both at the sales desk and in the credit department, must know that the customer is on cash or its equivalent only.
When a customer makes good on a bad check, you may choose to be forgiving, but only the first time. A repeat offender should be notified that its checks will no longer be accepted. Restrict repeat offenders to cash, money orders, or cashier’s checks.
Stay tuned to this Blog for more detailed information in the future on handling different types of bad checks, including NSF, stop payment, closed account checks (or, if you need the information now, tune into the chapter on bad checks in Credit and Collections Kit for Dummies by clicking on the book cover at the bottom of this blog).