When do other companies or partners respond for the debts of a company?

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In the business world, debts are an inherent risk of activity. But what happens when a company cannot meet its obligations and disappears or declares itself inactive? Can a creditor claim payment from another linked company or even from the partners?

When do other companies or partners respond for the debts of a company?

Business succession: new company, same activity

When an insolvent company disappears but its former managers or partners establish a new company that:

  • Is engaged in the same activity,

  • Maintains the same team of workers or a significant part of the previous one,

  • Uses the same means or facilities,

... these signs may be sufficient to understand that there is a business succession. In that case, the new company could be responsible for the outstanding debts of the previous one, if the economic or functional continuity is proven.

Partners' liability: lifting the corporate veil

As a general rule, partners do not personally respond for social debts. However, there are exceptional cases in which courts may apply the doctrine of lifting the corporate veil:

  • Fraudulent use of the company: When the company is used as a screen to commit fraud, harm third parties, or violate the law.

  • Fraud or negligence of the liquidators: After the liquidation of a company, creditors can claim against the partners up to the amount they received in the liquidation, and against the liquidators if they acted with fraud or negligence.

This figure is very restrictive, but it can be applied when it is proven that the corporate form has been abusively used.

And in groups of companies?

As a general rule, each company is only responsible for its own debts. But in a business group (for example, a parent company with several subsidiaries), liability can extend to another company in the group if:

  • The parent company places the order and the service benefits the entire group, but it is invoiced to a subsidiary without the ability to pay.

  • The parent company expressly assumes payment of the debt

  • It is proven that the group structure is a scheme to avoid fulfilling obligations.

Although liability for corporate debts is limited by the legal personality of companies, there are exceptional cases in which courts can extend such liability to other companies or to the partners themselves.

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