Collection of a Commercial Claim by a Company Successor of the Debtor due to Transfer of Customer

Critical points:

- The case involved a debt enforcement proceeding by a lighting supplier against another of its client companies. The supplier company had already succeeded in obtaining a payment order for claims it held against its client from cheques it had delivered to it. However, the client company appeared to have ceased trading and had no assets in its name.   

- The proper support of the case led at first level to the signing of a settlement agreement, whereby not only the debtor company but also its legal representative personally acknowledged their debt to the supplier. Consequently, the supplier could now also take action against the property of the legal representative. At a second level, following a court dispute, it was recognised by the court that the debtor's business had been transferred in its entirety to another company, which was held to be liable in parallel to the debtor for the repayment of the debt.  

- The issuance of a payment order against the legal representative for issuing a bounced cheque and the subsequent attempted enforcement against him led the latter to sign the settlement agreement. Subsequently, following the cessation of debt servicing by the legal representative, a careful investigation of the case and the gathering of all the necessary evidence led to the establishment of parallel liability of the old and the new company. 

Background

A company active in the lighting industry supplied its client company, which was in the form of a Limited Liability Company, with relevant equipment. In order to pay the price, the latter issued post-dated cheques which it delivered to its supplier. However, cheques totalling approximately EUR 200 000, when presented for payment at the bank, were stamped as bounced. At the same time, the LLC ceased to operate, without having in its name any valuable assets from which the supplier could be satisfied. The procurer went to court and obtained an order for payment from the cheques against the LLC, but it had no object of enforcement, and precisely because of the corporate form of its client company, it could not go against its legal representative to satisfy itself from his personal assets. The supplier, having no enforceable claim, temporarily abandoned all attempts to recover its claim and reopened the whole procedure after some four years.

Strategy

The key points for the successful outcome of the case were as follows:

- As the LLC had ceased trading and had no valuable assets, a title deed had to be issued against another co-owner who had property in his name and pressure had to be brought to bear to repay his debts. 

- At the first level, charges were brought against the legal representative of the LLC for the offence of issuing a bounced cheque. Subsequently, a payment order for part of the amount was issued against the legal representative of the LLC for the company's claim for compensation due to the commission of the above offence. 

- The acceleration of enforcement against the legal representative of the debtor company obliged him to enter into a settlement agreement, by which he agreed to repay the debt in installments and assumed personal liability for the entire amount of the debt.

- However, since the legal representative did not comply with his obligations under the agreement and he had no apparent property in Greece to satisfy the supplier's claim, other sources of recovery had to be sought. In the context of the settlement talks, the link between the legal representative of the debtor company and another company operating in the same field had emerged. The latter company had previously been active in a completely unrelated area of lighting.

- A period of extensive and detailed investigation followed in order to establish a link between the two companies. Very important evidence was obtained from Internet searches, research in the companies' registers and in particular from financial data of the companies obtained from the tax office following a request from the public prosecutor. On the basis of this information it emerged that the debtor company had transferred a very significant part of its clientele to a newcomer in the field, and the legal representative of the debtor company was now appearing to be working with this new company.

Outcome

The supplying company brought an action before the competent court on the legal basis of Article 479 of the Civil Code, which provides that where a person transfers all or the most important elements of his property or business to another person, parallel liability arises for both the person transferring and the person acquiring. The court was presented with a wealth of evidence which showed both that the legal representative of the debtor company was linked to both companies involved (the debtor and its successor) and that the admittedly most important customer of the original debtor company accounted for a very high percentage of the turnover of the successor company. However, the action was dismissed at first instance. The supplier appealed and the appellate court was provided with the supplier's customer cards of both companies, which had been obtained from the relevant tax authorities, following orders from the public prosecutor. These cards showed that the most important customers of the debtor limited liability company became customers of the successor company after its closure. The Court of Appeal was convinced by the evidence submitted and issued a judgment recognising the parallel liability of both companies for the repayment of the supplier's claim.   

The relevant decision states: "...it was established that the company with the name "..." was the debtor company's most important asset and that its clientele included the companies with the name "..." and "..." and that all of the aforementioned companies were included in the defendant's clientele. [...] From the foregoing it was established that a transfer of the clientele of the company named "... ", i.e. the most important element of the particular business which ceased to operate, to the defendant, so that its transfer to the defendant constituted a transfer of its business to the defendant and that the defendant, in view of the circumstances in which the transfer took place, was aware of the general financial situation of the debtor company, which was known to have gone out of business and was in a position to know, because of the transactions, that the property transferred to it, namely the debtor's clientele, constituted all or in any event most of the debtor's assets, given that the debtor's sole partner was a silent partner in the defendant'. 

Conclusion

In similar cases it is very important that each and every element is carefully examined in order to find objects of enforcement. Debtors often hide behind the existence of a corporation or divert the debtor company's assets to another company in the belief that they will not be discovered by creditors. In such cases, applying the appropriate pressure and gathering the necessary evidence using the possibilities provided by our judicial system, such as obtaining documents from public or private organisations to better support the party's claims, can be crucial to establishing the liability of third parties to whom the debtor's assets are channelled.