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CALIFORNIA CORPORATIONS AND CALIFORNIA LLC'S: BE WARNED

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IN CALIFORNIA, DIRECTORS AND OFFICERS MAY BE HELD LIABLE FOR THE DEBTS OF THE CORPORATION
According to the court, CarrAmerica determined that California follows the “ „trust fund doctrine‟ ” with respect to duties owed by corporate directors to creditors that arise upon the corporation‟s insolvency. The scope of this duty is to avoid “ „divert[ing], dissipat[ing] or unduly risk[ing] assets necessary to satisfy‟ ” creditors‟ claims.

The court observed that because this duty can be characterized as the obligation to avoid the squandering of an insolvent corporation‟s assets, “recovery for breach of this fiduciary duty generally concerns cases [in which] the directors of an insolvent corporation improperly divert corporate assets. [Citations.] Although no California cases expressly limit the „fiduciary duty under the trust fund doctrine to the prohibition of self-dealing or the preferential treatment of creditors, the scope of the trust fund doctrine in California is reasonably limited to cases [in which] directors or officers have diverted, dissipated, or unduly risked the insolvent corporation‟s assets.‟ [Citation.]”

 

SOURCE:  http://www.trustmakers.com/Asset-Protection-Education/case-study.php#20

 

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