Courts Are Widening The Cracks In The Corporate Shield


The lack of due diligence regarding potential business partners and failure to negotiate adequate contractual protections can have numerous ramifications, which are usually negative. One common mistake is entering into agreements with nominal corporate entities that have marginal assets.

The use of legal entities as a means of protecting individuals from personal liability is a time honored business tactic. Too often, when relationships sour, a party obtains a judgment against what once was thought to be a financially responsible enterprise only to find out it is unable to satisfy its obligations. This often results in frustration, abandonment of the judgment or a whole new and expensive lawsuit alleging fraudulent transfer. There are, however, other methods to efficiently seek redress against the solvent persons who caused the losses.

These methods were the subject of two recent Court of Appeal cases, coincidentally decided by different courts on the same day, which articulate two tactics for pursuing those who seek to evade financial responsibility by the use of entities to shield their assets.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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