Privately held company. Fined by courts. Goes bankrupt. Who, if anyone, pays the fine?

Factual Questions
1

Recently, a smallish local construction firm was fined an amount equal to over three times the earnings it made in its last profitable year. Link (not really relevant).

If the company goes bankrupt before any of the fine is paid, or after having paid only a portion of the amount outstanding, who/what is on the hook for the rest? The owner(s)?

I recognize that various jurisdictions may have different approaches, but I’m curious as to the possibilities.

Thanks!

ETA: The linked article seems to imply that the owner is responsible but is not totally clear about it.

2

The bankruptcy court is in charge of distributing assets to creditors. The government that fined the company is just another creditor, but generally pretty high on the food chain if it’s a criminal fine. Lower if it’s a civil penalty.

ETA: The article seems to imply that the bulk of the fines are against the owner of the company directly, not the company itself.

3

I think the whole point of having a corporation is that financial liability begins and ends with the corporation. If the corporation is bankrupt the debtors are usually SOL.

There are scenarios with fraud, malfeasance etc. where you can go after the people running the corporation personally, but you have to prove your case re the accusations.

4

Small corporations have a hard time doing anything without the owners assuming responsibility. This usually applies to credit, but often extends into licensing and regulation as well. I would assume the wording of the judgement would be important in a case like this.

5

The article says the owner as well as the company were fined (quite a bit).

For OP purposes, a company that goes bankrupt simply defaults on its debts, pays penny on the dollar due to sale of assets, or whatever arrangement the bankruptcy court comes up with. Bankruptcy is pretty established law. In situations where the business is a going concern, like the big car companies, the court will allow a restructuring. (Chapter 11 in the USA, IIRC). The debt is settled otherhow, and the company carries on running with less debt charges if the business seems viable.

In a case like this, where the company is the owner, and the company has a less tahn stellar reputation now, and poor continuing busines prospects it’s less likely that it will carry on. the assets will simply be sold and the company folded, all proceeds to pay debts and any residual (hah) going to the owner.

Where an incorporated, limited liability company engages in activities that carry criminal charges or civil liabilities for misbehaviour, the people responsible for the decision making usually are jointly or additionally charged or sued. The decision makers are also to blame; so they will also face the music.

Note the concept of “joint and several” liability. If company A and CEO B are both sued and found liable for $1,000,000 then whatever one can’t pay, the other must, unless both go bankrupt.

however, in this case there were two sets of fines, for the company and the owner separately.

the trick that some people (like Peter Pocklington recently) try to use is that if the bankruptcy is just for normal business activity, not deliberate bad behaviour, then the company executives are not liable. you can pay yourself a $400,000 salary while the company goes down the tubes, as long as you can show that you wer trying to make the company a going concern (or rather, they can’t prove it was systematic looting). The courts are not around to make you a good businessman, just not a crooked one.

6

Note that the incident in the linked article occurred in Canada. Bankruptcy law there may be very different from US law, as far as what sort of fines and penalties may be dischargeable, and corporate law may differ as to when an owner can be held liable.

7

**Depends **on the form of the corporation, C-corp, S-corp, LLC, LLP, general partnership, and the jurisdiction where the company is formed.

8

Great answers! Thanks, all.