Know This One Thing to Avoid Personal Liability

Sometimes, the presumed liability shield of an LLC and a corporation doesn’t help and YOU can be held personally liable for the debts of a company.

This was proven in a recent Michigan Court of Appeals case, Bryant v Horatio Williams and Hattie Williams-Fields.

The Facts in This Case are Straightforward

Bryant suffered an injury while working for On Time Transportation (OTT) and was awarded workers’ compensation.  However, OTT, of which Williams was an officer, did not have insurance to pay the claim.  So Bryant filed a suit against OTT for payment.  Although Bryant won the case, he never collected because OTT was insolvent.

Later, in a series of transactions, Williams transferred valuable real estate.  Bryant filed another lawsuit against him alleging that the real estate transfer was fraudulent and that as an officer of the OTT, he was personally liable for the unsatisfied workers’ compensation judgement he had previously won against OTT.

The Ruling

Williams made some technical arguments as to why he shouldn’t have to pay and he would have won except for one minor (read: major) detail: the Michigan Workers’ Disability Compensation Act.  This Act (specifically MCL 418.647(2)) states that if the employer is a corporation, the officers and directors of the corporation are liable for any portion of a judgement the corporation fails to pay.  Also managers of an LLC, who are also the members, are liable for any portion of a judgement the corporation fails to pay.

How You May be Personally Liable for Business Debts

In essence this law allows an injured worker to collect against officers and directors (and managers/members) if the insurance carrier does not meet its obligation (or in this case where OTT did not even have workers’ compensation insurance).

This language can hold unsuspecting LLC members liable for actions taken by even majority members of an LLC.  For instance, where the LLC is member-managed (instead of manager-managed), and the LLC is ruled by majority vote, if the majority owner decides not to carry Workers’ Compensation insurance, minority members could inadvertently be held liable for workers’ comp claims.  The same analysis also applies to officers and directors of a corporation who may not have the authority or power to control business decisions related to workers’ compensation.

This case is only one example where the presumed liability shield of an LLC or corporation will not prevent a creditor from going after officers and directors, or members and managers personally, for debts of the entity.

Let’s work together to try to minimize your personal liability for business debts.  Call me at 248-455-6500 or email me at agoldberg@ajglaw.com

 

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