By Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a Freehold, NJ Business Commercial Law Attorney
In the case of, In re Ryan and Jane Ltd, the New Jersey Courts addressed whether alter-ego and fraudulent transfer claims become the property of the bankruptcy estate. Before we go any further, let’s talk about all of these different claims.
The “Alter ego” and “piercing of the corporate veil” legal theories are interrelated concepts, so it helps to talk about them together. The easiest way to think about these concepts is to refer to the action heroes: Batman and Bruce Wayne. Each is the same person. However, Batman is Bruce Wayne’s alter ego. Whenever Bruce Wayne needs to save the day he hides behind the protection and alter ego of Batman, so that his true identity as Bruce Wayne is not discovered. This allows him to live a private unrecognized life. By staying below the radar, he does not have people running up to him asking for autographs, newspapers begging him for interviews, and of course, villains trying to kill him.
The law works somewhat similarly with corporations and individuals. By creating a corporation individuals can, to a certain degree, insulate themselves against personal liability. When the court however finds that a corporation lacks a separate identity from an individual or corporate shareholders and this results in an injustice to the corporation’s debtors, this gives the court cause to pierce the corporate veil to hold individual shareholders personally liable for the debts of the corporation. This injustice is deemed to be a breach of fiduciary duty. The parties who owe this duty are called fiduciaries. The individuals to whom the fiduciaries owe the duty to are called principals. What creates a fiduciary duty is when a party’s legal obligation is to act principally for another party’s beneficial interests.
To discuss your NJ Business Commercial Law matter, please contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at firstname.lastname@example.org. Please ask us about our video conferencing consultations if you are unable to come to our office.