Debt Collection and Successor Liability

The path seems obvious. A business won’t pay your invoice so you go to court and get a judgment. Unfortunately, what many people do not realize is that securing a monetary judgment against an entity does not always translate to you receiving that money. Rather, a judgment is a document that states that a (person or) entity owes you money. Should the debtor refuse to pay you after a judgment is granted, you must go through the “collections” process to receive money.

But what happens if a debtor company closes or ceases operations while you are attempting to collect money from them? Unfortunately, if the company has no assets and you can not show that they transferred assets fraudulently, then you generally will have a difficult time collecting the debt.

However, if the company merely closes and reopens under a new name, you may be able to enforce the judgment against the new company.

Under Virginia law, a company that purchases or receives the assets of another company generally is not liable for the debts and liabilities of the company selling those assets. However, there are four exceptions to this rule in Virginia:

  1. If the new business agreed to assume the debt (this can be done expressly or impliedly and is fact specific);
  2. A court finds that there is a de facto merger of the old and new company (generally, facts show a continuity of business and ownership);
  3. If the purchasing business is a continuation of the selling corporation; or
  4. the transaction is fraudulent in fact.

See Kaiser Found. Health Plan v. Clary & Moore, P.C., 123 F.3d 201, 204 (4th Cir. 1997); see also Harris v. T.I., Inc., 243 Va. 63, 70 (1992)

Because each case involves unique circumstances, it is best to consult with an experienced attorney to explore your options. If you have questions regarding collecting on a judgment and need assistance from someone with knowledge of business and collections law, please do not hesitate to contact our firm at 804-423-1382 or to schedule a one-on-one consultation with one of our experienced Virginia attorneys. We would like to help