Shareholders of startups and closely held corporations often tie their livelihoods to the success of the company. In many cases, these shareholders may not take a salary or any distributions from the company, giving judgment debtors fewer avenues to collect.
When a debtor has no wages to garnish and no money in a personal bank account to seize, a creditor may wonder, “How can it be so difficult to collect from the CEO of a successful company?.
While situations like these can be frustrating, there are ways to put pressure on a debtor whose assets are tied up in a corporation. One method is a property execution, which the creditor can use to force the sale of the debtor’s shares in the corporation. While the shares may not be worth much on the open market, they’re likely very valuable to the debtor, who may feel compelled to settle the judgment in order to maintain an ownership stake in his or her business.
Timing can also play an important role in applying pressure on a debtor. For instance, if the company is preparing to raise a round of funding, filing a motion in court or sending the Sheriff to sell the majority owner’s shares in the entity may spook investors and devalue the company, which the creditor can use to try and negotiate a settlement, either with the debtor or with the company in order to prevent disruptions to the company’s operations.
Even though a debtor may not have liquid assets to seize, a savvy creditor can take steps to put the debtor who owns shares in a corporation in a position where the company’s investors, the company itself, and/or the debtor realize that it is in their best interests to satisfy the judgment to prevent the creditor from jeopardizing the business.
To learn more about how Katz Melinger can help you collect, contact us.
Adam J. Sackowitz
Don’t miss an update! Sign up for our newsletter here.