Creditors' rights against corporate debtors

In general, creditors' rights against corporate debtors are no different from their rights against real persons. They have the right to sue upon the debt, to secure a judgment, and to levy upon the assets through a writ of execution.

The aforesaid writ, however, can only reach assets that are property at common law. To levy upon "equitable" assets a creditor has the further remedy of a creditor's bill in equity or "supplementary proceedings." To the degree that their claims are unpaid creditors have the right to insist that shareholders contribute to the corporation full value for their shares.

Fraudulent conveyances apply to corporations in essentially the same way as to real persons. To allow a hurried and piecemeal liquidation of the corporation's assets to satisfy creditors may yield less towards their claims than the sale of the corporate debtor's assets as a unit. Consequently equity courts often appoint receivers to hold the property intact with a view to its sale as a unit for the benefit of all concerned. Receivership is theoretically an ancillary remedy of creditors rather than a mode of relief for embarrassed corporate debtors. Until comparatively recent times, however, it was the normal vehicle for the reorganization of failed corporations at the instigation of "friendly" creditors, because in no other way could the assets be held together from the onslaught of creditors seeking payment. The ultimate sale of the assets as a unit by the receiver was usually to the reorganization committee.