In White v. Funeral Financial Systems et al. , the Illinois Appellate Court was confronted with two interesting issues in a case where a former lawyer for a company was trying to collect a judgment against the former employer, in a situation where members of the owners’ family had created other, similarly-named entities.
The first issue was whether the assets from the debtor company were fraudulently transferred to the family members’ other companies. The court noted that the Fraudulent Transfer Act requires fraudulent transfer of an asset, which does not include property to the extent it is encumbered by a valid lien. In this case, as the property subject to the transfer was properly encumbered, the court found no fraudulent transfer.
The second issue was whether the failure to give notice of dissolution of the company under Section 12.75 of the Illinois Business Corporation Act imposes personal liability. This provision provides that a dissolved corporation can bar claims against it by providing notice to creditors, setting a claim date, and notifying creditors of the barring of claims. Section 8.65(a)(2) of the Business Corporations Act provides that directors who fail to take reasonable steps to cause the notice required to be given to known creditors can be personally liable for all loss and damage occasioned by this failure. The Court noted that neither party discussed whether this section even applied given that the company was involuntarily dissolved, and that there was no evidence presented that there was a loss based upon the failure.
This case, although it presented a situation that commonly gives rise to veil piercing, successor liability, and fraudulent transfer claims, demonstrates the essential nature of articulating the assets transferred and showing the value of these assets. In many cases, this requires expert analysis and testimony to demonstrate the value transferred, which provides a measure of damages in these cases. Similarly, claims based on improper dissolution under the Business Corporations Act require a clear articulation of damages.
If you have a question about this case or a collection matter, contact Michael Haeberle at mhaeberle@pattersonlawfirm.com.