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Thought Leaders: Piercing the Corporate Veil to Recover Accounts Receivable

Many business owners are facing rising accounts receivable during these challenging economic times as customers struggle to stay afloat and default on payments. If you have a judgment, lien, or other debt against a company that has no assets or that is defunct, you may still be able to recover from a person or parent company by piercing the corporate veil.

The corporate form protects owners, shareholders, officers, or parent companies from corporate liabilities. Nevertheless, under certain circumstances the corporate form can be pierced so that a creditor can access the assets of a person or entity related to the defunct company. Piercing the corporate veil may be achieved by proving a person or entity is the alter ego of the defunct company. Colorado courts will find an alter ego if the person or entity used the defunct company to transact their own affairs and has the same interests as the defunct company such that separate personalities of the person or entity and the defunct company do not exist.

The courts consider various factors, such as whether funds and assets are commingled, adequate corporate records are maintained, the business is thinly capitalized, shareholders disregard legal formalities, corporate funds or assets are used for noncorporate purposes, and whether the form of ownership and control facilitates misuse by an insider.

We most frequently see veil piercing as an option where sole proprietorships or small businesses are involved, as they may not have observed corporate formalities, may have treated business assets as personal assets, or diverted funds to avoid creditors. If you have a claim against a defunct company, you may be able to pierce the corporate veil and recover amounts owed you. Speak to an attorney to see if piercing the corporate veil is a path to recovery for you.


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