Collecting a Debt on a person hiding behind a single member LLC and a dissolved company. Olmstead decision

[LegalActionIssue]

What is the name of your state? Florida.

Greetings.

I am trying to collect a debt on a individual who has continued business operation under a new company name but the same basic business.

She initially registered a new Florida business, opened up a business bank account. Since that time, the company has been placed on inactive registration status and dissolved by the state of Florida however the business continues.

When I say its continuing to operate, I do not mean its liquidate restaurant equipment in a fire sale or auction but rather to continue normal business operation and even expand business operation despite being dissolved by the State of Florida.

In addition to being a dissolved business still operating in full capacity and expanding its operations. It is also a single member LLC meaning there is just the 1 owner. This one owner is the person I have the judgment against. Florida has something called the "Olmstead decision" which was some kind of landmark case which has been described as a "Sand Castle fortress" for single member LLC , meaning its easy to break and offer little to no protection.

I do have a garnishment against this individual however the bank has not including bank account in this name of this single LLC and dissolved company even know I have a judgment against the Individual.

Banks are required by federal law to have a " know your customer" meaning they should know who is the owner of that bank account/business right?

My question is if the bank should be garnishing this account for this individual? If so, should I put them on notice or let them figure it out for themselves?

My understanding is that a dissolved business has no protection if it continues to operate with new business and even has sort of a reverse-piercing the corporate veil effect. In which the assets of the company become fair game from the debt of its single member.

If I put the bank on notice and they refuse, would I have a potential case against the bank for failing to comply with the garnishment and fully researching the accounts that are subject to the garnishment?

To recap:
1. dissolved company. continuing to operation and expand
2. Single member LLC in Florida after the landmark case " Olmstead decision"
3. My Judgment against this person individually. Who has a single member LLC which is a dissolved/inactive company according to the state of Florida.
4. Would like to how if the bank should be garnishing this account and if I am responsible for putting them on notice of this information?

Thank you.

 

[quincy]

What is the name of your state? Florida.

Greetings.

I am trying to collect a debt on a individual who has continued business operation under a new company name but the same basic business.

She initially registered a new Florida business, opened up a business bank account. Since that time, the company has been placed on inactive registration status and dissolved by the state of Florida however the business continues.

When I say its continuing to operate, I do not mean its liquidate restaurant equipment in a fire sale or auction but rather to continue normal business operation and even expand business operation despite being dissolved by the State of Florida.

In addition to being a dissolved business still operating in full capacity and expanding its operations. It is also a single member LLC meaning there is just the 1 owner. This one owner is the person I have the judgment against. Florida has something called the "Olmstead decision" which was some kind of landmark case which has been described as a "Sand Castle fortress" for single member LLC , meaning its easy to break and offer little to no protection.

I do have a garnishment against this individual however the bank has not including bank account in this name of this single LLC and dissolved company even know I have a judgment against the Individual.

Banks are required by federal law to have a " know your customer" meaning they should know who is the owner of that bank account/business right?

My question is if the bank should be garnishing this account for this individual? If so, should I put them on notice or let them figure it out for themselves?

My understanding is that a dissolved business has no protection if it continues to operate with new business and even has sort of a reverse-piercing the corporate veil effect. In which the assets of the company become fair game from the debt of its single member.

If I put the bank on notice and they refuse, would I have a potential case against the bank for failing to comply with the garnishment and fully researching the accounts that are subject to the garnishment?

To recap:
1. dissolved company. continuing to operation and expand
2. Single member LLC in Florida after the landmark case " Olmstead decision"
3. My Judgment against this person individually. Who has a single member LLC which is a dissolved/inactive company according to the state of Florida.
4. Would like to how if the bank should be garnishing this account and if I am responsible for putting them on notice of this information?

Thank you.

You cannot use your judgment against the individual to directly access the bank account funds of the LLC to help satisfy the judgment. The LLC is a separate legal entity.

You potentially could look at getting a charging order lien from the court.

Florida Statute section 605 . 0503:
https://law.justia.com/codes/florida/title-xxxvi/chapter-605/section-605-0503/

 

[Taxing Matters]

You can't directly attach LLC assets to satisfy the debts of the LLC owner. The options available to you are spelled out in the Florida statutes in this paragraph:

(4) In the case of a limited liability company that has only one member, if a judgment creditor of a member or member's transferee establishes to the satisfaction of a court of competent jurisdiction that distributions under a charging order will not satisfy the judgment within a reasonable time, a charging order is not the sole and exclusive remedy by which the judgment creditor may satisfy the judgment against a judgment debtor who is the sole member of a limited liability company or the transferee of the sole member, and upon such showing, the court may order the sale of that interest in the limited liability company pursuant to a foreclosure sale. A judgment creditor may make a showing to the court that distributions under a charging order will not satisfy the judgment within a reasonable time at any time after the entry of the judgment and may do so at the same time that the judgment creditor applies for the entry of a charging order.​

Fla. Stat. Ann. § 605.0503 (West)

The Olmstead case doesn't help you. It does not have the effect you thought and, moreover, the case is no longer good law. The rule for collecting from a debtor who has an ownership interest in a business entity other than a LLC is that the charging order is the exclusive remedy for the creditor. That leaves the judgment creditor in the position of waiting for the entity to make distributions to the judgment debtor. In some cases no distribution is ever made, leaving the judgment creditor with nothing to collect. In Olmstead a federal court asked the Florida Supreme Court to answer the question of how Florida law applies to one member LLCs because there was a conflict in the law. The Supreme Court answered that in the case of a one member LLC the provision that allowed a creditor to foreclose the interests of a one member LLC took precedence over the more general rule that charging orders are the sole remedy. The Florida legislature amended its statutes in response to this decision to remove the conflict. The rule above was the legisature's decision regarding the matter. It effectively adopted the Supreme Court's decision. As a result, the Olmstead case is now moot. It's the current statute that controls. The bottom line is that if you want to collect from the LLC for the judgment you'll either have to be content with attaching distributions with your charging order or go to court to pursue the foreclosure option.

You said the LLC dissolved. The reason for dissolution matters. In most cases, however, the result that the LLC's assets are distributed to the LLC members. That means that your judgment debtor likely became the direct owner of the assets. However, there are other dissolutions that don't have that result because the dissolution is effectively an administrative suspension that the owner can easily remedy. Dissolution over failure to pay franchise fees often falls into this category.

You also need to know what the owner then did with the assets. It may be that he transferred them to another entity with a similar name (pretty common tactic of debtors trying to stay one step ahead of creditors and keep the business doors open).

If it turns out that your judgment debtor is now the direct owner of the assets, you might still have to go court to get a judgement or order to that effect. Banks are, in my experience, very conservative when they receive levy and garnishment orders and as long as the bank has the accounts in the name of the LLC it is likely to rebuff the charging order. They want to have the accounts in the name of the debtor or a court order saying that, before they give up the money. Their fear is that if they give you the money and turns out you weren't entitled to it the bank will have to pay out a second time to the LLC owner. The bank therefore wants to be sure that it will only have to pay out once.

I collected tax for the IRS for a number of years. It's easier for the IRS to collect, but some of these same issues do arise in IRS collection cases. Collection is, unfortunately, not as straightforward as a lot people assume. I recommend you consult a lawyer who litigates business cases for advice on the route you should take to collect the money you are owed at the least cost. I haven't come close to a full discussion of this topic in this thread. I haven't seen all the facts, and those facts are very important to your plan of attack. The lawyer can walk you through all that.

Keep good records of all the costs you expend in this effort. Those costs will be federal tax deductions against whatever you are able to finally squeeze out of the debtor.

 

[quincy]

What is the amount of your judgment, LegalActionIssue?

 

[LegalActionIssue]

You cannot use your judgment against the individual to directly access the bank account funds of the LLC to help satisfy the judgment. The LLC is a separate legal entity.

You potentially could look at getting a charging order lien from the court.

Florida Statute section 605 . 0503:
https://law.justia.com/codes/florida/title-xxxvi/chapter-605/section-605-0503/

Charging order requires a profit distributions to the member you have a judgment against. Since the only member is in charge of the single member LLC, they could just avoid this by failing to make a official distribution and use the company funds as their personal piggy bank right?

What about the fact that the company is dissolved officially by the state of Florida? These dissolved company are only suppose to protect the liquidation of the company assets for like their going out of business sale and things of this nature. This company is buying new products, new equipment, new employees, etc.. They are doing business despite not being registered.

This company is an active business and even expanding without being registered. Would this would weaken this corporate shield?

An unregistered business is nothing more than a DBA which would have passthrough liability? If this is correct, what type of motion would you need to make this argument?

 

[LegalActionIssue]

You can't directly attach LLC assets to satisfy the debts of the LLC owner. The options available to you are spelled out in the Florida statutes in this paragraph:

(4) In the case of a limited liability company that has only one member, if a judgment creditor of a member or member's transferee establishes to the satisfaction of a court of competent jurisdiction that distributions under a charging order will not satisfy the judgment within a reasonable time, a charging order is not the sole and exclusive remedy by which the judgment creditor may satisfy the judgment against a judgment debtor who is the sole member of a limited liability company or the transferee of the sole member, and upon such showing, the court may order the sale of that interest in the limited liability company pursuant to a foreclosure sale. A judgment creditor may make a showing to the court that distributions under a charging order will not satisfy the judgment within a reasonable time at any time after the entry of the judgment and may do so at the same time that the judgment creditor applies for the entry of a charging order.​

Fla. Stat. Ann. § 605.0503 (West)

The Olmstead case doesn't help you. It does not have the effect you thought and, moreover, the case is no longer good law. The rule for collecting from a debtor who has an ownership interest in a business entity other than a LLC is that the charging order is the exclusive remedy for the creditor. That leaves the judgment creditor in the position of waiting for the entity to make distributions to the judgment debtor. In some cases no distribution is ever made, leaving the judgment creditor with nothing to collect. In Olmstead a federal court asked the Florida Supreme Court to answer the question of how Florida law applies to one member LLCs because there was a conflict in the law. The Supreme Court answered that in the case of a one member LLC the provision that allowed a creditor to foreclose the interests of a one member LLC took precedence over the more general rule that charging orders are the sole remedy. The Florida legislature amended its statutes in response to this decision to remove the conflict. The rule above was the legisature's decision regarding the matter. It effectively adopted the Supreme Court's decision. As a result, the Olmstead case is now moot. It's the current statute that controls. The bottom line is that if you want to collect from the LLC for the judgment you'll either have to be content with attaching distributions with your charging order or go to court to pursue the foreclosure option.

You said the LLC dissolved. The reason for dissolution matters. In most cases, however, the result that the LLC's assets are distributed to the LLC members. That means that your judgment debtor likely became the direct owner of the assets. However, there are other dissolutions that don't have that result because the dissolution is effectively an administrative suspension that the owner can easily remedy. Dissolution over failure to pay franchise fees often falls into this category.

You also need to know what the owner then did with the assets. It may be that he transferred them to another entity with a similar name (pretty common tactic of debtors trying to stay one step ahead of creditors and keep the business doors open).

If it turns out that your judgment debtor is now the direct owner of the assets, you might still have to go court to get a judgement or order to that effect. Banks are, in my experience, very conservative when they receive levy and garnishment orders and as long as the bank has the accounts in the name of the LLC it is likely to rebuff the charging order. They want to have the accounts in the name of the debtor or a court order saying that, before they give up the money. Their fear is that if they give you the money and turns out you weren't entitled to it the bank will have to pay out a second time to the LLC owner. The bank therefore wants to be sure that it will only have to pay out once.

I collected tax for the IRS for a number of years. It's easier for the IRS to collect, but some of these same issues do arise in IRS collection cases. Collection is, unfortunately, not as straightforward as a lot people assume. I recommend you consult a lawyer who litigates business cases for advice on the route you should take to collect the money you are owed at the least cost. I haven't come close to a full discussion of this topic in this thread. I haven't seen all the facts, and those facts are very important to your plan of attack. The lawyer can walk you through all that.

Keep good records of all the costs you expend in this effort. Those costs will be federal tax deductions against whatever you are able to finally squeeze out of the debtor.

Company shows on state filings " ADMIN DISSOLUTION FOR ANNUAL REPORT". I guess they did not turn in the required paperwork. I think many Florida companies will register just to get an bank account on year # 1 but then fail to do anything to keep the company filed with the state.

Basically same company, same owner, same location, same business, same everything but new name to avoid debt.

So if you have a garnishment against an individual and this individual has a account at a bank account under a company name but they are a single member LLC( no innocent partner), the bank will not attach that money that is owned by that individual because its was formed as a company originally? ( even if that company is currently dissolved by the state)?

Thanks.

 

[LegalActionIssue]

What is the amount of your judgment, LegalActionIssue?

Like 50K or something around that.

 

[Zigner]

So if you have a garnishment against an individual and this individual has a account at a bank account under a company name but they are a single member LLC( no innocent partner), the bank will not attach that money that is owned by that individual because its was formed as a company originally? ( even if that company is currently dissolved by the state)?

Thanks.

The individual doesn't have an account at a bank. The LLC does.

 

[Taxing Matters]

Company shows on state filings " ADMIN DISSOLUTION FOR ANNUAL REPORT". I guess they did not turn in the required paperwork. I think many Florida companies will register just to get an bank account on year # 1 but then fail to do anything to keep the company filed with the state.

Basically same company, same owner, same location, same business, same everything but new name to avoid debt.

So if you have a garnishment against an individual and this individual has a account at a bank account under a company name but they are a single member LLC( no innocent partner), the bank will not attach that money that is owned by that individual because its was formed as a company originally? ( even if that company is currently dissolved by the state)?

Thanks.

Ok, it was administravely dissolved for failure to fille the annual report. In most states that's a problem the company can fix by filing the report, though I've not checked for your state. Did you check the Secretary of State for the name of the new company? If there is something on the records, what does it say? How different are the name of the dissolved and the name they are using now? Don't provide the name on this board, just indicate how different they are.

If the new company is not registered with the state the owner won't have any limited liability protection and the bank account of the owner should be fair game. You may, however, have to prove to the bank that your debtor is the owner. One of the tactics people who avoid debt collectors chasing business owners do is put their business in the name of a friend or relative so that if a garnishment or levy order is received by the bank the bank won't see your debtor on the records and won't attach the account. The debtor takes a big risk doing that, though, because the debtor is putting trust in the friend or relative not to make off with the company assets. I have seen a few cases where, when push came to shove, the friend or relative decided to grab the business assets for themselves and left the debtor empty.

 

[zddoodah]

I am trying to collect a debt

You sort of started in the middle of the story. I assume that you sued the individual and obtained a $50k judgment. Correct? We're going to call this woman Sally.

She initially registered a new Florida business, opened up a business bank account.

Based on the subject header of your post, I assume this means that Sally organized an LLC (let's call it SalCo, LLC) and that SalCo, LLC opened a bank account. Correct?

Florida has something called the "Olmstead decision" which was some kind of landmark case which has been described as a "Sand Castle fortress" for single member LLC , meaning its easy to break and offer little to no protection.

I assume this is a reference to a 2010 Florida Supreme Court decision in a case called Olmstead v. FTC, 44 So. 3d 76 (Fla. 2010). In that case, the court "conclud[ed] that the LLC act charging order provisions were not the 'exclusive' remedy for judgment creditors of judgment debtors who owned the sole membership interests in an LLC." The Florida Bar published an article about the decision and ensuing legislation, but it's not at all as you described it.

Banks are required by federal law to have a " know your customer" meaning they should know who is the owner of that bank account/business right?

I'm sure the bank is aware that SalCo, LLC owns the account, and the bank probably has documents that indicate that Sally is a/the sole member of SalCo, LLC. I'm not sure why you think that is significant.

My question is if the bank should be garnishing this account for this individual? If so, should I put them on notice or let them figure it out for themselves?

You are free to let the bank know anything you like, but a garnishment against Sally should not touch accounts owned by SalCo, LLC.

If I put the bank on notice and they refuse, would I have a potential case against the bank for failing to comply with the garnishment and fully researching the accounts that are subject to the garnishment?

No.

I suggest you consult with a local debt collection attorney about how you might approach this. Likely, you're going to have to file a new action against the LLC.

 

[quincy]

Like 50K or something around that.

Thank you for answering my question, LegalActionIssue, and thank you for providing additional information.

How long ago did you get the judgment against this person? It sounds as if you have been trying to collect on it for awhile.

 

[LegalActionIssue]

The individual doesn't have an account at a bank. The LLC does.

Is an LLC still an LLC if the state dissolves the LLC? It does not transform into a sole proprietorship at that point and lack whatever legal shield it once had?

 

[LegalActionIssue]

Ok, it was administravely dissolved for failure to fille the annual report. In most states that's a problem the company can fix by filing the report, though I've not checked for your state. Did you check the Secretary of State for the name of the new company? If there is something on the records, what does it say? How different are the name of the dissolved and the name they are using now? Don't provide the name on this board, just indicate how different they are.

If the new company is not registered with the state the owner won't have any limited liability protection and the bank account of the owner should be fair game. You may, however, have to prove to the bank that your debtor is the owner. One of the tactics people who avoid debt collectors chasing business owners do is put their business in the name of a friend or relative so that if a garnishment or levy order is received by the bank the bank won't see your debtor on the records and won't attach the account. The debtor takes a big risk doing that, though, because the debtor is putting trust in the friend or relative not to make off with the company assets. I have seen a few cases where, when push came to shove, the friend or relative decided to grab the business assets for themselves and left the debtor empty.

The names on the filings with the state of Florida are like for example of a Candy shop with the originally called Tilly’s tasty treats but now Clara Creative Confections.
Different words but same concept.

I have a judgment against the person and the former company.

How can I determine that the business account is in her name and only in her name? Don't the banks have to know this information under the " know your customer law" that was done after 911 ?

If I press the issue that a dissolved company has lost its liability shield. If they pay the late fee to Florida and file the past paperwork, does that liability shield become active again?

Mostly importantly, is that liability shield protection become retroactive meaning can it protect her from the motion filed against her while the shield was down?

Thanks

 

[Zigner]

So you DON'T have a judgment against the current LLC.
For the amount of money you are talking about, it may be worth it to sit down with an attorney specializing in collections and have a discussion.

 

[LegalActionIssue]

Thank you for answering my question, LegalActionIssue, and thank you for providing additional information.

How long ago did you get the judgment against this person? It sounds as if you have been trying to collect on it for awhile.

The legal process takes so long. Just started trying to collect in 2026 but already hitting a brick wall. The events that lead up to this has been a long time in the making.