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What Can You Do When A Customer Hides Behind An Attorney?

posted on 2014-03-19 by Dean Kaplan

This Article by Dean Kaplanwas originally published on our Blog at The Kaplan Group.  At our commercial collection agency, we aren't afraid to talk to attorneys. When we call a debtor and they tell us to talk to their attorney, our biggest fear is that the attorney will not actually talk to us.

 

Once we are instructed to talk to a company's attorney, we are no longer allowed to contact people at the company directly. All communication must go through the attorney once the company has identified who represents them and the law firm confirms they have been retained. Unfortunately, all too often the attorney will not communicate with us after this initial confirmation.

 

There could be a number of reasons for their lack of communication. The attorney may not have the information from their client to have an informed discussion. Or, the attorney may also be owed money by the client and does not want to invest more time until they have been paid. The attorney may be so involved in other cases that we aren't even on page 1 of their priority list and there will be a long delay before they can devote attention to the issue. In all of these situations, there is some chance that eventually we can talk to the attorney, have meaning­ful conversations, and ultimately resolve the matter.

 

Alternatively, the attorney may be refusing to engage as a defined strategy agreed to with their client. They realize that if they don't talk, our only option is to file a lawsuit. This can be a very effective debtor strategy if they believe the circumstances make the chance of litigation very small. For example,if the cost to litigate is high relative to the amount owed, it may not make economic sense to file a lawsuit. Or, if the debtor's financial situation is unclear, or worse, known to be poor, they know it will be difficult for the creditor to justify investment in collection litigation when the chance of eventually getting paid is highly uncertain. When a debtor is using this 'hiding' strategy, it means they have decided that in no circumstances will they consider paying anything unless a lawsuit is filed.

 

We find this situation very frustrating, as we know that if we can't get engagement, we don't have any chance of collecting without litigation. Somehow this is worse than being stonewalled by the debtor, as we have many different strategies to pursue in that situation. For our clients, this is an insult added to the injury of providing goods or services and not getting paid. Their customer, who they trusted to keep their payment commitment, has now spurned them in a defiant manner. Thankfully most businesses do not utilize this effective yet ethically questionable strategy.




Why We Can’t Collect From A Defunct Company

posted on 2014-03-05 by Dean Kaplan

 

The chances of col­lect­ing on an invoice due from a com­pany that has ceased oper­at­ing are very slim. If the busi­ness was orga­nized as a cor­po­ra­tion or LLC (lim­ited lia­bil­ity com­pany) then only the busi­ness entity itself is liable for out­stand­ing invoices. If there are no assets remain­ing in the entity then the entity has no way to gen­er­ate cash to pay cred­i­tors. We call these enti­ties “defunct.”

It fre­quently requires sig­nif­i­cant effort to prove a com­pany is defunct. Web­sites can be active for a year or more after a com­pany ceases busi­nesses, as the web­site host­ing com­pany may not be aggres­sive in shut­ting down delin­quent cus­tomers. The company’s phone may be work­ing with voice mail for many months after oper­a­tions cease. Own­ers keep the phone ser­vice so they can get mes­sages they want but ignore ones that don’t ben­e­fit them, such as col­lec­tion calls and cus­tomer ser­vice requests. So just because the phone and web­site are still work­ing does not mean the com­pany is still operating.

At our col­lec­tion agency, we’ll do exten­sive research and field work to try to prove a com­pany is defunct before we give up on a claim. We look for alter­na­tive phone num­bers, addresses, and web addresses for the busi­ness and its own­ers. We call neigh­bor­ing busi­nesses and ask if they know if the tar­get busi­ness is still open. Usu­ally they con­firm our worst fears that it is closed, but occa­sion­ally we learn the busi­ness is still open. Then it is clear the phone is not answered and mes­sages are not returned when the topic is a past due amount. At that point we know we need to take an alter­na­tive approach in the debt col­lec­tion process.

If the company's phone is no longer in ser­vice, that usu­ally is a very bad sign. It is almost impos­si­ble to keep a busi­ness going if cus­tomers can­not reach a com­pany. If we con­firm a com­pany is closed it is usu­ally cost pro­hib­i­tive to con­firm that there are no assets remain­ing. Busi­ness own­ers are not oblig­ated to pro­vide finan­cial infor­ma­tion and rarely even respond to cred­i­tors after clos­ing their com­pany – they are focused on find­ing a new source of income. The only way to force the owner to pro­vide the infor­ma­tion is to file a law­suit, get a judg­ment, and con­duct a debtor exam. Given the cost of the legal process and the low like­li­hood of recov­ery, the return on invest­ment poten­tial is not high and our clients rarely can jus­tify this investment.

A com­pany that goes out of busi­ness is not oblig­ated to file bank­ruptcy. It typ­i­cally costs about $3,000 to hire an attor­ney to file bank­ruptcy. Most small busi­ness own­ers right­fully choose to not spend money just to offi­cially bank­rupt a com­pany as they don’t get any value for this expen­di­ture. In most cases we see, bank­ruptcy is only filed if the owner is also fil­ing for per­sonal bank­ruptcy pro­tec­tion or to deal with per­sonal lia­bil­ity related to tax penal­ties and interest.

For our col­lec­tion agency, well over half the claims we close with­out col­lect­ing are invoices due from defunct com­pa­nies. In 95% of these cases, the invoices were very old before they were turned over to us. Had third-party debt col­lec­tion started sooner there would been a much bet­ter chance of get­ting some recovery.

As explained in prior arti­cles on per­sonal lia­bil­ity and pierc­ing the cor­po­rate veil, there is a chance of col­lect­ing when the com­pany is defunct if an indi­vid­ual is legally liable. How­ever, in most cases where the busi­ness was the owner’s pri­mary source of income, their per­sonal finan­cial con­di­tion is prob­a­bly very poor. We often find it can take a cou­ple years before they bounce back finan­cially and we can then col­lect on their per­sonal oblig­a­tion. Thus, get­ting a per­sonal guar­anty can have value. But, the best way to avoid not get­ting paid by a defunct com­pany is to esca­late the col­lec­tion process sooner and get to them before they go out of business.