Collecting From Related Companies – Is It Possible?
Sometimes, during a debt collection effort, the collector will find that the owner of a company or corporation also holds ownership (whether partial or total) in another business entity. The businesses in this case are said to be related – they are owned, at least in part, by another company or individual. Can the assets of a related company be pursued to cover debts owned by the original company?
The answer to this depends largely on who exactly owns the two companies, and what type of business entity they are. In the case of two solely-owned proprietorship businesses, assets from a related company can be used to cover the debts of another. This is because it is the owner himself, rather than the businesses he owns, that is personally responsible for the debts of both businesses. If one of his businesses falters and the owner can’t pay it’s debts from savings or another set of assets, he may be required to use assets from his other business(es) to cover what he owes.
However, if the debts are owned by a corporation, assets of related businesses cannot be used to cover the indebted enterprise’s debts. This has to do with the way corporations are set up – the individuals who hold ownership in these companies are not responsible for the debts of the owner, and therefore their share of ownership in related companies cannot be used to help cover what they owe. This is true even when a corporation is the full owner of another – if either corporation falls into debt, the other entity is not responsible for this money.
It is important for anybody performing collections, whether an in-house agent or a debt collector at a collection agency, to know what assets their debtors have available to pay off a debt. By knowing when a related business’s assets can be used as collateral, this opens the collector’s options greatly when it comes time to push a debtor to make a payment.
About The Author:
Dean Kaplan is Principal at The Kaplan Group. Dean's expertise is widely recognized in the debt collection industry. His advice has been published in a number of industry newsletters such as Credit Today and InsideARM and he is a frequent speaker at industry events.