In a shell game, the operator uses identical-looking shells and sleight of hand to keep you guessing where the pea is. The same may occur in business collections. This article will discuss how crafty customers use corporate shell games to frustrate collections, and how you can defeat them.
How The Shell Game Can Frustrate Collections
The corporate shell game is designed to shield a business from collections. It does this by operating 2 or more corporations with similar names, in order to keep its income and assets separate from liabilities.
For example, say a business operates Acme, Inc. and Acme Trading, Inc., with both trading as “Acme.” If it buys under one and sells under the other, the first will have all the debt and the second will have all the revenue.
As a result, your judgment against the customer may be unenforceable, since it doesn’t have any assets in its own name. Yet due diligence and proper pleading can help you defeat this scheme.
How To Defeat The Shell Game In Collections
The shell game works when no one knows about it. Yet once uncovered, it may support allegations of fraud, fraudulent transfers and other counts that expose the second entity and the owners to liability.
Sometimes you’ll find clues in your own records, like if the name on their checks differs somewhat from the name on your invoices. Other times, your lawyer may discover things while doing his due diligence. For example, a public records search for “Acme” may reveal multiple companies with common ownership, as may searching up the principals and their social media.
Shell games can be hard to prove, and not every case justifies the cost of litigating them. But for a larger case, where the customer is using different entities to defraud you, exposing the scheme may be your key to getting paid.
For more information on commercial collections and the AR collection process, or if you’d like to discuss a specific collection issue, call me at 856-667-1669 or contact me here.
This material is for informational purposes only and should not be construed as legal advice. No person should rely on this information without seeking the advice of an attorney.