Can assets held inside a corporation be seized during shareholder\’s bankruptcy?

October 3rd, 2005 by Questions

It is my understanding that a private corporation is a separate legal entity independant of it\’s shareholders. If a majority / controlling shareholder declares bankruptcy can the corporation be forced to liquidate it\’s assets to repay the shareholder\’s debt?

Questions

One Response to “Can assets held inside a corporation be seized during shareholder\’s bankruptcy?”



October 05, 2005 at 3:35 pm, A licensed trustee said:

Maybe – if a shareholder files bankruptcy then the shares that they owned become an asset of the bankrupt estate. In other words, the trustee handling the bankruptcy controls the shares.

Trustees are required to try and maximize the money they can recover for a bankrupt’s unsecured creditors. If by exercising some of the voting rights of the shares they can recover more money for the creditors a trustee may be tempted to do so.

That being said, you are correct that the corporation is a separate legal entity and therefore has it’s own rights, responsibilities and protection under the law.

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