Friday, February 20, 2009

Collecting From A Dissolved LLC

Question: An LLC borrowed a sum of money from me for equipment for their new business in 06. The LLC still owes me $15,000 and is going to dissolve without having paid me in full. I do have a written contract. What is my recourse for collection of the funds still due? Anroln, Virginia.
Two remedies come to mind. First, have an attorney review the contract to see if it forms the basis for a direct collection action against the LLC members as guarantors or cosignors of the debt. I'm not sure if you had an attorney prepare the contract but, when extending credit to new LLCs, the wise course of action is to make the LLC members cosign the loan. Secondly, I would hope you got a security interest in the equipment. This is done by correctly executing and filing a UCC1 form. More info on UCC1. Thus, when the LLC ceases operation, you can at least get the equipment back.

The option of last resort is collection against the LLC. I'm not sure about Virginia but, in most states, the LLC must file a plan of dissolution with the Secretary of State's office. The plan should list you as a creditor of the LLC and state how they plan to pay you, if at all. Check with the Secretary of State's office (called the State Corporation Commission in VA) to see if such plan was filed for this LLC. See contact info for VA State Corporation Commission. If the LLC has assets that are not subject to lien and other remedies are not viable, the best course of action is to institute a collection action ASAP to get your judgment on file before the others that may be coming. Just because an LLC has filed a notice of dissolution does not mean it no longer exists. The voluntary notice of dissolution starts the winding up process. See VA statute on winding up LLC.

Collections are not my specialty so, as always, I encourage you to sit down with a local lawyer to review your options in this matter.

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