If corporation was involuntarily dissolved, is it still responsible for credit line debt?
Full Question:
Answer:
Even if a corporation is administratively dissolved, the debts can remain and the corporation can wind up its affairs. If the principals of the company provided personal guarantees (or provided their social security numbers) to the card lender, they may be facing liability for the debt if the corporation cannot satisfy the debt.
As you may know, the Illinois law provides the following for involuntary dissolution of a corporation:
Administrative Dissolution by the Secretary of State
(1) Reasons for Administrative Dissolution. The Act permits the Secretary of State to dissolve a not for profit corporation administratively (that is, without requiring a judicial hearing) for any of the following reasons:
(a) Failure to file the corporation's annual report;
(b) Failure to file any other report required to be filed with the Secretary of State;
(c) Failure to appoint and maintain a registered agent in the State; and
(d) In the case of corporations organized as a not-for-profit club, for retail sale of alcohol without a retailer's license.
(2) Notice of Delinquency and Prospective Dissolution. If the Secretary of State determines that one or more of the reasons set forth above for administrative dissolution of an Illinois not for profit corporation are present, the Secretary must attempt to notify the corporation by mailing a Notice of Delinquency to the corporation's registered office, or if there is no known registered office, to the president or another principal officer at such officer's last-known office (as shown on the Secretary of State's records). Note: Since one of the common factors resulting in administrative dissolution are inattention of the registered agent or change of address of the corporation and/ or its registered office, a corporation that did not receive its annual report form because it was sent to an old address is also likely to not receive a Notice of Delinquency warning of an impending administrative dissolution. Thus, a corporation may have been administratively dissolved for some time before the officers of the corporation discover the problem.
If a corporation does not correct the failure that led to the Notice of Delinquency within 90 days after the Delinquency Notice was sent, the Secretary of State will dissolve the corporation administratively, by issuing a Certificate of Dissolution, one copy of which is mailed to the corporation at its last-known registered office address. The administrative dissolution will also be reflected on all Secretary of State records, including its website listings of Illinois corporations.
(3) Effect of Administrative Dissolution. Administrative dissolution has the same legal effect as voluntary dissolution described above. However, if the corporation is subsequently reinstated as set forth in subsection (4) below, the corporation's existence will also be retroactively reinstated for all purposes. If a corporation has been administratively dissolved and it is either not possible or desirable to reinstate the corporation's good standing and existence, the corporation's affairs should be wound up, its assets liquidated and all debts and obligations paid or otherwise satisfied. In particular, it is beneficial to go through the notice to creditors process described above in Section II. I. Such process provides the benefit of forever barring claims of creditors who do not respond during the required notice period.
Once the dissolution is complete, the corporation ceases to exist EXCEPT that it continues its corporate existence for the limited purpose of “winding up” its affairs. Included in the winding up process are:
1. Collecting corporate assets;
2. Disposing of corporate assets that will not be distributed in kind to its shareholders;
3. Giving statutory notice to the corporation’s know creditors and discharging or making provision for discharging the corporation’s liabilities;
4. Distributing the corporation’s remaining assets among the shareholders according to their interests; and
5. Doing any other acts that are necessary to wind up and liquidate the corporation’s business and affairs.
Dissolution of a corporation DOES NOT:
1. Transfer title to the corporation’s assets;
2. Prevent transfer of its shares or securities;
3. Effect any change in the by-laws of the corporation or otherwise affect the regulation of the affairs of the corporation except that all action shall be directed to winding up the business and affairs of the corporation;
4. Prevent suit by or against the corporation in its corporate name;
5. Abate or suspend a criminal, civil or any other proceeding pending by or against the corporation on the effective date of dissolution. When the corporation is dissolved, and there are funds or other assets which are due to a shareholder who cannot be found or who is under a legal disability, then those funds or assets (which must be reduced to cash) are reported and delivered to the Illinois State Treasurer.
A dissolved corporation can bar any known claims against it, its directors and its officers, agents, employees, and its shareholders by following these statutory procedures:
Within 60 days from the effective date of dissolution, the dissolved corporation must send a written notification to each claimant setting forth the following information:
1. That the corporation has been dissolved and the effective date of the dissolution.
2. The mailing address to which the claimant must send its claim and the essential information to be submitted with the claim.
3. The deadline, which must be not less than 120 days from the effective date of dissolution, by which the dissolved corporation must receive the claim.
4. A statement that the claim will be barred if not received by the deadline.
If, after providing the above notice, the dissolved corporation rejects the claim in whole or in part, the dissolved corporation must notify the claimant of the rejection and must also notify the claimant that the claim will be barred unless the claimant files suit to enforce the claim within a deadline not less than 90 days from the date of the rejection notice.
A claimant that does not deliver its claim by the deadline established pursuant to the written notice or that does not file suit by the deadline established pursuant to the rejection of a claim, shall have no further rights against the dissolved corporation, its directors, officers, employees or agents, or its shareholders or their transferees.
“Claim” does not include any contingent liability or a claim arising after the effective date of dissolution or a claim arising from the failure of the corporation to pay any tax, penalty, or interest related to any tax or penalty.
The statutory procedure for barring claims DOES NOT APPLY to claims arising out of violations of the criminal law.
805 ILLINOIS COMPILED STATUTES 5/12.85:
“The dissolution of a corporation either (1) by the issuance of a certificate of dissolution by the Secretary of State, or (2) by a judgment of dissolution by a circuit court of this State, or (3) by expiration of its period of duration, shall not: (a) Prohibit the State from prosecuting said corporation criminally by indictment, information or complaint filed subsequent to its dissolution for any offenses committed prior to dissolution; or (b) Abate or suspend a criminal proceeding which is pending against the corporation on the effective date of dissolution.
If the debt has been sold and is attempted to be collected by a third party, you should be familiary with the proper techniques that must be followed when collecting the debt.
You have probably heard of debt relief companies. There are also some companies, even credit card companies, that will work out a compromise settlement or reduced monthly payment. Family and friends are also sometimes options. There is really no good answer to your problem, a problem that many people face. Thus options include, but are not limited to, bankruptcy, debt relief company, compromise you do yourself, friends, family, loans. I suggest you resolve the charges before a lawsuit is filed to collect the money owed, which may further damage your credit history.
Another option to examine is Consumer Credit Counseling Service. CCC is a nationwide nonprofit organization that attempts to work with both the debtor and his or her creditors to devise a more manageable repayment plan. This service very often results in revised payment plans which are acceptable to both the debtor and the creditor, thereby eliminating the need to file bankruptcy.
If you need help negotiating with your creditors, consider contacting a nonprofit debt counseling organization. You can find a list of counseling agencies by location at the website of the U.S. Trustee, www.usdoj.gov/ust (select "Credit Counseling and Debtor Education.") The federal government has authorized the agencies on this list to provide counseling to debtors considering bankruptcy. However, don't pay anyone to "fix" your credit.
The following link allows you to search by area for financial counselors recomended by Dave Ramsey:
http://www.daveramsey.com/coaching/find-coach/
Please read the tips from the Better Business Bureau on selecting a credit counselor :
http://www.bbb.org/alerts/article.asp?ID=613
The following organization is a referral from the Better Business Bureau:
http://www.clearpointcreditcounselingsolutions.org/?source=bbb_tip_choose
If the collection agency pursues her with attempts to collect on the debt she should be familiar with the federal law that covers how the attempts can be done.
The following is from the Fair Debt Collections Practices Act:
§ 809. Validation of debts [15 USC 1692g] (a) Within five days after the initial communication with a consumer in connection with the collection of any debt, a debt collector shall, unless the following information is contained in the initial communication or the consumer has paid the debt, send the consumer a written notice containing --
(1) the amount of the debt;
(2) the name of the creditor to whom the debt is owed;
(3) a statement that unless the consumer, within thirty days after receipt of the notice, disputes the validity of the debt, or any portion thereof, the debt will be assumed to be valid by the debt collector;
(4) a statement that if the consumer notifies the debt collector in writing within the thirty-day period that the debt, or any portion thereof, is disputed, the debt collector will obtain verification of the debt or a copy of a judgment against the consumer and a copy of such verification or judgment will be mailed to the consumer by the debt collector; and
(5) a statement that, upon the consumer's written request within the thirty-day period, the debt collector will provide the consumer with the name and address of the original creditor, if different from the current creditor.
(b) If the consumer notifies the debt collector in writing within the thirty-day period described in subsection (a) that the debt, or any portion thereof, is disputed, or that the consumer requests the name and address of the original creditor, the debt collector shall cease collection of the debt, or any disputed portion thereof, until the debt collector obtains verification of the debt or any copy of a judgment, or the name and address of the original creditor, and a copy of such verification or judgment, or name and address of the original creditor, is mailed to the consumer by the debt collector.
(c) The failure of a consumer to dispute the validity of a debt under this section may not be construed by any court as an admission of liability by the consumer.