A Business Closed but Owes Me Money: 6 Places the Money Might Still Be

A company that has closed its doors has usually not closed its books, and the money it owed a supplier or contractor is rarely gone so much as relocated. It may sit with a trustee, with the shareholders, with the owner who guaranteed the account, with a buyer, or with a surety that wrote a bond years ago for exactly this moment. The creditor's task is to find which.

The six places below are listed roughly in the order a creditor's lawyer would look. Each depends on a different document, and several depend on the creditor acting within a deadline that began running when the business shut, whether or not the creditor heard about it.

1. The Company's Own Wind-Down, or the Bankruptcy Court's

A closed business is still a legal person until it finishes winding up, and winding up includes paying claims. New York's LLC Law section 703 lets the persons winding up an LLC's affairs prosecute and defend suits, dispose of property, and discharge liabilities in the company's name. For corporations, Business Corporation Law section 1007 lets a dissolved corporation publish a notice, at least once a week for two successive weeks in a county newspaper, with copies mailed to known creditors, requiring claims in writing by a date not less than six months after the first publication. Claims that miss the date "shall be forever barred as against the corporation, its assets, directors, officers and shareholders," subject to limited exceptions.

That notice runs in a newspaper most creditors do not read. The mailed copy is supposed to reach known creditors, which is one reason to make sure the customer's files carry the creditor's current address, and one reason to answer any letter from a dissolved customer the week it arrives rather than the month after.

If the business filed bankruptcy instead, the claims process belongs to the court. In a voluntary chapter 7 case, Bankruptcy Rule 3002(c) treats a proof of claim as timely if filed within 70 days after the order for relief; in chapter 11 the court sets the deadline. A chapter 7 case for a closed company is often a small estate. The claim is still the price of any distribution at all.

2. The Shareholders Who Received What Was Left

Delaware writes the rule that makes this place worth searching. A dissolved corporation that follows sections 280 and 281 of its General Corporation Law pays or provides for claims before distributing the remainder, and section 282 then limits a stockholder's liability for a claim to the lesser of the stockholder's pro rata share of the claim or the amount distributed to that stockholder. The cap is also a door. A stockholder who received a distribution can owe back up to what was received.

Whether a particular distribution was made in the right order is a question of records, and the creditor will not see those records without a lawsuit or a subpoena.

3. The Owner Who Signed for the Account

Credit applications ask for a personal guaranty for a reason, and this is the moment the reason arrives. The guaranty is the owner's own obligation, and no state dissolution procedure releases it.

The wording decides the order of pursuit. The Uniform Commercial Code draws the distinction for negotiable instruments: under section 3-419, a signer who unambiguously guarantees collection must pay only after, among other things, execution against the principal debtor comes back unsatisfied, the principal is insolvent, or it cannot be served. A guarantor of payment can be pursued directly, without first chasing the business. Most trade credit guaranties are separate contracts governed by their own terms rather than by Article 3, so the provision works as an illustration, not a rule, and the guaranty itself has to be read.

4. The Buyer, or the Company That Looks Like the Old One

Buying a company's assets does not, as a general rule, make the buyer answer for the seller's debts. New York's highest court stated that rule in Schumacher v. Richards Shear Co. in 1983, along with its four exceptions: the buyer expressly or impliedly assumed the liability, the transaction was a consolidation or merger, the buyer is a "mere continuation" of the seller, or the transaction was "entered into fraudulently to escape such obligations." Schumacher was a product liability case. Courts apply the same framework in contract disputes, though how far is a question for counsel in each state.

A closed restaurant that reopens under a new name at the same address, with the same owners, the same staff and the same phone number, is the situation creditors describe most often. It resembles the old business the way a repainted food truck resembles itself: the lettering is new and the dents are exactly where they were. Whether that resemblance meets the continuation exception is a matter the facts will decide, and one this page will not.

The owners themselves are a separate question. New York will disregard the entity only on a showing, under Morris v. New York State Department of Taxation and Finance, that the owners exercised complete domination over it in the transaction attacked and used that domination to commit a fraud or wrong that injured the plaintiff. Domination alone is not enough.

5. Transfers Made on the Way Out

Money that left the business in its final months can sometimes be brought back. Under New York's version of the Uniform Voidable Transactions Act, Debtor and Creditor Law section 273 makes a transfer voidable if made "with actual intent to hinder, delay or defraud any creditor," and lists the familiar signs of that intent, among them a transfer to an insider, a transfer of substantially all assets, and a transfer made after a suit was threatened. Section 274 reaches transfers for less than reasonably equivalent value by an insolvent debtor, and transfers to an insider on an old debt while insolvent. Section 278 sets the time limits, generally four years after the transfer for most claims and one year for the insider-preference claim. The creditor carries the burden of proof by a preponderance of the evidence.

These are the claims a creditor imagines first and proves last. The owner who paid himself (or, if we are being precise, paid the company's debt to himself) in the month before closing is the ordinary example, and it is the insider-preference claim under 274(b), with its one-year limit, that most often fits it.

6. The Surety Behind a Construction Bond

A subcontractor or supplier on a federal project may not need the closed contractor at all. Under the Miller Act, a contract of more than $100,000 for the construction, alteration or repair of a federal building or public work requires a payment bond "for the protection of all persons supplying labor and material." Under 40 U.S.C. 3133, a claimant unpaid 90 days after its last labor or material may sue on the bond, a claimant who dealt only with a subcontractor must give written notice to the prime contractor within 90 days of its last work, and suit must be brought within one year after the last labor or material. The claimant can obtain a certified copy of the bond by affidavit.

State public projects and many private ones carry bonds of their own. The contract file will say.

The Creditor's Own Balance Sheet

Every place above is reached through a lawyer, and a creditor chasing a closed customer needs a collection or construction attorney, not a settlement company. Delancey Street, a negotiator for businesses that owe money and not a law firm, does not collect for creditors.

What it does address is the other half of the problem, when the customer who closed owed enough to leave the creditor behind on its own merchant cash advance. Delancey Street will examine that obligation without charge and privately, bringing in separately licensed lawyers when the questions become legal ones. The customer's money has moved somewhere. The creditor's own payment schedule has not.