Law.com Subscribers SAVE 30%

Call 855-808-4530 or email [email protected] to receive your discount on a new subscription.

'Personal' Alter Ego Claims in Bankruptcy

By Thomas B. Walper, Mark Shinderman and Amy Boyd
August 01, 2003

With corporate fraud and bankruptcy filings on the rise, creditors are increasingly looking to related entities, corporate shareholders, directors and officers to pay their claims when the corporation goes belly-up. Unfortunately, bankruptcy courts have made it virtually impossible for creditors to maintain individual alter ego claims against the debtor's shareholders and affiliates. As a result, crafting an alter ego claim that will survive an attack by the bankruptcy trustee (or the bankruptcy court itself) requires finesse.

Test of Determination

The vast majority of courts agree on the test to employ in determining whether an individual creditor has standing to bring an alter ego action against the debtor's shareholders. If the injury alleged is “general” – that is, if the estate and its creditors are similarly injured – then the alter ego action is properly brought by the debtor-in-possession or the bankruptcy trustee. By contrast, if the injury is “personal” to a particular creditor, and no other creditor has been similarly injured, the alter ego action is properly brought by the individual creditor. Not surprisingly, many creditors have tried (and failed) to plead sufficiently personal injuries to wrest control of the alter ego action from the trustee. This begs the question: what type of injury is personal enough to confer standing on an individual creditor? The answer depends on three things: 1) the state law governing the alter ego claim; 2) the trustee's interest in the alter ego action; and 3) the equities of the case. If state law does not confer standing on the debtor to pierce its own corporate veil, then a creditor alter ego suit is permissible.

This premium content is locked for Entertainment Law & Finance subscribers only

  • Stay current on the latest information, rulings, regulations, and trends
  • Includes practical, must-have information on copyrights, royalties, AI, and more
  • Tap into expert guidance from top entertainment lawyers and experts

For enterprise-wide or corporate acess, please contact Customer Service at [email protected] or 877-256-2473

Read These Next
Major Differences In UK, U.S. Copyright Laws Image

This article highlights how copyright law in the United Kingdom differs from U.S. copyright law, and points out differences that may be crucial to entertainment and media businesses familiar with U.S law that are interested in operating in the United Kingdom or under UK law. The article also briefly addresses contrasts in UK and U.S. trademark law.

Strategy vs. Tactics: Two Sides of a Difficult Coin Image

With each successive large-scale cyber attack, it is slowly becoming clear that ransomware attacks are targeting the critical infrastructure of the most powerful country on the planet. Understanding the strategy, and tactics of our opponents, as well as the strategy and the tactics we implement as a response are vital to victory.

The Article 8 Opt In Image

The Article 8 opt-in election adds an additional layer of complexity to the already labyrinthine rules governing perfection of security interests under the UCC. A lender that is unaware of the nuances created by the opt in (may find its security interest vulnerable to being primed by another party that has taken steps to perfect in a superior manner under the circumstances.

Removing Restrictive Covenants In New York Image

In Rockwell v. Despart, the New York Supreme Court, Third Department, recently revisited a recurring question: When may a landowner seek judicial removal of a covenant restricting use of her land?

Fresh Filings Image

Notable recent court filings in entertainment law.