The Elmans are liable to pay. As dominant shareholders their responsibility is t

Question

The Elmans are liable to pay. As dominant shareholders their responsibility is towards the corporate rather than to themselves and their relatives. Especially if the payments made do not have any business justification then they are definitely liable.

As prominent shareholders they should first worry about the company and make sure that they meet their corporate obligations. After meeting them they should look to meet any other obligations. A failure to meet the corporation obligation makes them liable for debts and they have to meet them even if it means to dip into their personal funds to meet the corporate debt. It should not be the other way around where they meet the personal demands and forget about meeting corporate debts and obligations.

Explanation / Answer

The terms of a collective bargaining agreement required Green & Freedman Baking Company, a corporation, to make periodic payments on behalf of its unionized drivers to an insurance fund. However, after experiencing financial difficulties, Green & Freedman ceased to make the agreed-upon contributions. There was evidence that Richard and Stanley Elman, dominant shareholders in the corporation, caused the corporation to make payments to themselves and their relatives at a time when the corporation was known to be failing and could be expected to default, or was already in default, on its obligations to the insurance fund. These payments lacked any business justification. Sandra Crane, the insurance fund manager, sued the Elmans to recover the payments owed by Green & Freedman. The Elmans claimed that, as shareholders, they were not personally liable for corporate debts. Should the court pierce the corporate veil and hold the Elmans personally liable on the corporate debt?

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