The company is bust - but corporate card bills live onJanuary 28, 2010: 2:05 PM ET
When a company goes under, employees can be stuck with the liability for their corporate credit cards.
Becky, Birmingham, Ala.
My company, an LLC, is insolvent and dissolving. No formal bankruptcy will be filed, and unsecured creditors will not be paid. I know there's potential for my credit card company to serve me with a lawsuit if I am unable to commit to a payoff plan. Can my employees also be held liable? In other words, can employees who charged company expenses on the corporate credit card be sued for the amount they charged on the card?
By Lenora Chu, CNNMoney.com contributing writer
Where liability rests depends on the specific terms of the member services agreement under which the corporate card was issued. Those agreements differ widely from issuer to issuer.
Some agreements stipulate that the card issuer must first pursue the company or master cardholder -- usually the company officer or director that first opened the account -- for unpaid balances, says Joseph Rosenbaum, an attorney and partner with the law firm Reed Smith LLP.
Others allow the issuer to come after both the company and its employees for various charges, says business attorney Steven Fox of the law firm Epstein, Becker & Green.
In this scenario, the agreement generally says that the master cardholder is liable for charges he makes on his individual card, as well as those made on other corporate employee cards, Fox says.
But the agreements also typically specify that individual employee cardholders are also personally liable for any charges they may make on the card held by them (but not the charges made to other employees' cards). That means the card issuer can go after the master cardholder for all charges, and your employees for their individual charges -- at the same time.
This represents the issuer's "concurrent or simultaneous right" to pursue both parties for payment, says Rosenbaum. It leaves the employer and employee to sort out who ends up with the bill.
Of course, should the card issuer come after an employee who charges a legitimate business expense on behalf of his employer and is not reimbursed, then that employee could have a claim against his employer.
"But that's not much comfort if the company is insolvent and may already have a long line of creditors," Rosenbaum says.
One way to shelter employees from liability as the company is dissolving is to negotiate an agreement with the card issuer to settle the remaining debt, in return for which the creditor agrees not to go after staffers for their unpaid balances.
"This is often a more palatable approach for the card issuing company anyway," says Rosenbaum. Most card companies would still prefer not to alienate individuals who haven't done anything improper.
Both Fox and Rosenbaum recommend that you consult with an attorney for advice specific to the details of your own corporate card membership agreement.
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