Can You Sue a Business That Has Gone Out of Business?

Individuals or businesses with valid claims may sue non-existent companies for legal remedies. However, several things must be considered, as success is not guaranteed.

This article discusses when and how to sue a company that’s going out of business or is already out of business. Remember, closing a business limits new obligations but does not erase existing ones, so there could be a remedy for you.

Can a Business Close to Avoid Lawsuits?

Filing for voluntary dissolution does not automatically prevent a person with a legitimate claim from instituting legal action against that business. Generally, the law protects creditors who act timeously, subject to the availability of funds.

It is crucial to learn when you can sue, and what causes of action you can bring against the company. These cases are usually complex, and it is best to partner with an attorney who can assess your case and provide tailored advice. Proceeding without proper legal guidance can cost you significantly.

Suing a Non-Existent Business

A business may cease operations but still exist legally. For a business to officially close, it must undergo a specific process, and until that process is complete, an individual or legal entity with a legitimate claim may file a lawsuit to obtain legal remedies. Below is a summary of the relevant steps and the legal implications of each stage:

1. Dissolving a Business

For corporations, LLCs and partnerships, the first phase of closing a business is dissolution. In Pennsylvania, articles of dissolution must be sent to the Department of State, Corporation Bureau. Other states have prescribed procedures that typically involve notifying their Secretary of State’s office. A dissolved corporation continues to exist as a legal entity, affording the same liability protections to owners as before. 

2. Winding-Up

Businesses are under obligation to pay their creditors, especially before distributing assets among owners. Diverting assets to purposefully avoid creditors can lead to lawsuits for fraudulent conveyances. The winding-up phase involves a full reconciliation of financial claims made against the company. Addressing all claims during this phase is essential to avoid potentially facing personal liability for them after the business no longer exists. 

When the company is insolvent, the directors or managers may also have fiduciary liabilities to creditors as they wind up the business. The winding-up phase is an excellent opportunity to develop strategies for deflecting future lawsuits. It is crucial to speak to a lawyer for help completing the winding-up process.

3. Closing a Business

Closing a business is the final phase in the process, but owners can still face legal troubles due to missteps in the procedure. Closing a business cancels its existence as well as any legal protections it may have previously offered. At this point, any legal claims made against the company may fall to the owners. These lawsuits often involve legal technicalities, especially where multiple parties are involved.

Also, note that sole proprietorships generally have fewer steps to follow but are not immune to lawsuits. Regardless of the business structure, it is best to consult a business law attorney for tailored advice.

What Actions Can You Bring Against a Dissolved Company?

You may sue a dissolved company based on several causes of action. A cause of action is the combination of facts that entitles a person to a legal remedy. Here are some examples:

• Outstanding debts: You may sue the dissolved company if it owes you money or failed to honor a contractual obligation.
• Fraudulent conveyances: You may sue the company if the owners or officers diverted assets to insiders instead of paying creditors.
• Breach of fiduciary duty: You may sue the directors of the company for failing to take proper steps to protect your claims as a creditor during insolvency or the winding-up process.
• Personal injury: You may sue the dissolved company for manufacturing products alleged to cause future harm.
• Internal disputes: As a partner or board member, you may sue, claiming fraud or misuse of funds.
• Improper procedure: Failing to follow the procedure for closing a business may allow you to sue the company for an existing cause of action.

Why Should You Sue a Dissolved Company?

Most people wonder whether it is worth suing a dissolved company. This concern is legitimate, as some businesses close because they can no longer afford to operate. However, you may still recover assets or obtain monetary compensation depending on the circumstances. Here are a few things to consider:

• Insurance coverage: The company could have insurance for claims that occurred during the covered period. If you succeed, the insurance company may reimburse your losses.
• Existing assets: The company may have assets yet to be sold or distributed, and you may sue to recover the entire or part of the amount the company owes you.
• Owner liability: Supposing the company has no assets, you may sue the owners to the extent of their liability. For sole proprietorships, you may sue the owners personally, as there is no limited liability.
• Piercing the corporate veil: In certain situations, courts attach liability directly to owners despite having personal liability protection. This concept is known as piercing or lifting the corporate veil.

What Is the Limitation Period?

In Pennsylvania, the statute of limitations for filing claims against a company can vary, but it usually ends after a maximum of four years. Therefore, you must act promptly to prevent time from working against you. Once this period of time passes, you may lose your right to obtain legal remedies in court.

Why Trust Us?

MPL Law Firm has provided effective legal services to individuals and businesses in Pennsylvania for decades. We have extensive experience in business law, gained by handling diverse, complex cases. We have an impressive track record and success rate thanks to our skilled legal team. Our well-resourced attorneys dedicate time to finding practical solutions based on industry best practices.

We listen to our clients and develop strategies that help us to achieve the desired results. We are honest and transparent in all our engagements, setting realistic expectations for each situation. Our forward-thinking and innovative approach enables us to resolve disputes according to present legal challenges.

We aim to form long-standing relationships and guide clients through their hurdles. To us, clients are much more than just a case or a transaction — they are a part of the family.

Contact Our Pennsylvania Business and Commercial Lawyers

MPL Law Firm has a team of knowledgeable attorneys ready to assist you. We handle complex commercial and business disputes in Pennsylvania and provide excellent client services.

Do you have a claim against a company going out of business and need urgent legal representation? Our lawyers will assess your case and help you develop a practical solution. Remember, time is of the essence, so it is best to act promptly. Contact us today to schedule a consultation!