legal advice needed from Americans

Hi there, I have this US customer who failed to pay in 2 consecutive months. He wants us to ship more products to him yet he does not have the money to prepay them (we set this rule as he still owe us a lot of money). This puts us in a real dilemma - we certainly want him to stay afloat, otherwise if his company goes bankrupt, it will be a total loss for us! He is now suggesting giving us a "personal guarantee" which according to him; will help us attach the debt personally to him.



Is there such a thing in the US? Is this really useful or is he just bull-shitting?


Also, how effective it is if we appoint debt collectors overseas to collect debts for us?


Thanks!

Yes there is such a thing. (assuming his business entity belongs to the limited liability category.)

However, he is most likely bull-s**tting you anyway.

In the pure legal sense, corporate(business) and personal bankruptcies are separate. However, when it comes to small businesses, especially sole-proprietor operations, things are never very clear. For business bankruptcies to be insulated away from personal assets, the business assets need to be completely separate from personal assets. Small business owners often do a bad job separating business and personal assets. the legal term is "commingling corporate assets". Under such conditions, an opposing lawyer can petition the court to "pierce the corporate veil". The fact that your custy is offering "personal" guarantee indicates he probably commingles often. Which implies his old debt to you is already de-facto "guaranteed" by him personally. It is most likely an empty guarantee anyway. He probably has very little liquid personal assets. Many US states have homestead laws which prevents creditors (with exception of mortgage holders) from going after the debtors' home.

In any case it would be very hard and expensive for you to go after his personal assets anyway.

Thanks Oski. May be it is easier to appoint a debt collector than suing him:(!

Beancurd, thanks! We always practise deposit and payment before shipment to all new clients. However, when business grows bigger over time, it's natural that better credit terms are negotiated. We have been working with this US customer for a few years and they had always been good in terms of paying. It is so difficult - in our case, withholding shipment is still not good enough, because we have lots in the pipeline (development and production).

Yes there are "personal guarantees" in the USA....as well you might consider a mortgage on his home;' however ALL such ideas must be properly drafted and implemented (registered where appropriate).....the best advice is ALWAYS built on a "comprehensive" understanding of the facts/deal....we suggest you attend with all documents for an initial interview of HK$2,800.00.


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