Representing Businesses and Individuals in Chicago and Northern Illinois

Has Your Customer Changed Their Name or Entity?

People change, and so do companies. Companies get reorganized, shut down, merged, and dissolved. All manner of things can happen to a company that can change its legal status. If a corporation is no longer in existence, then the contracts it entered into might become unenforceable.

I once had a case where a customer/company owner placed a number of large orders with my client pursuant to an old credit agreement. The problem was that the company that was listed as the “debtor” on the old credit agreement was no longer still around. The company owner had dissolved the old company (an LLC) and created a new company (an S Corp) under almost the exact same name.

Since the customer/company owner never submitted a new credit agreement for his new company, my client assumed he was still ordering materials for his old company pursuant to his old credit agreement. But that assumption was misplaced. The old company was dissolved, and so the old credit agreement was no longer enforceable. The terms relating to contractual interest, late fees and attorney fees were no longer enforceable. Worse yet, there was no longer a guarantor for the orders because the guarantor only guaranteed purchases made by the old company, not the new one. It took a bit of fancy lawyering to get this case settled.

If you have a long-term relationship with a client who obtains materials based on an old credit agreement, you would be well advised to do regular legal audits on the corporate status of your client. When your client undergoes a change of entity, a new credit agreement should be executed.