The Impact of Bankruptcy on Alter-Ego Claims

When companies falter and cannot meet their financial obligations, they face the threat of becoming defendants in a civil lawsuit.  Oftentimes, the plaintiffs in a case will seek to hold the officers or directors of the defendant personally responsible for the debts and obligations of the corporation based on an “alter-ego” or “piercing the corporate veil” theory.  The same financial strife that occasioned the lawsuit also often results in the company filing for bankruptcy protection.  But what is the impact, if any, of the bankruptcy filing on the claims against the officers and directors of the company?

According to Fifth Circuit law, in most cases, the claims against the officers and directors of the company based on a claim that they are liable for the obligations of the company actually become the property of the bankruptcy trustee, who may assert the claims for the benefit of all creditors, rather than just the plaintiff. In re Schimmelpenninck, 183 F.3d 347, 356 (5th Cir. 1999).  Therefore, in the event that claims are asserted against individuals for the obligations of a bankrupt company, it may be worth investigating whether the plaintiff is really the proper claimant at all.

If your company is defending or prosecuting claims in which a corporate officer of a bankrupt corporation is alleged to be liable for corporate debts, the attorneys at Powers Taylor can advise you on whether the holding from Schimmelpenninck will apply to your case.


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