Comments Off on Risk Increases When Your Customer Is a ‘Hollow’ Corporation

Corporate credit checking is important. Every now and then one of my clients calls me about a ‘sure thing’ they want me to collect. It is a major company and they checked that the company is solvent and in the black. ‘This collection will be easy’ I am told.

Quite often they are checking the wrong company. Sure, they spoke to company ‘AAA’ but the contract was made out in a difference name such as ‘AAANJ’. The difference was never even noticed, but that different sometimes means not getting paid.

One of my Clients rented commercial space to a well known fast food franchise. They did all negotiations with the parent company and the parent company provided information on who and which corporation was responsible. It seemed like a can’t miss opportunity, but they never got paid a dime after the franchise folded.

The contract was not made out in the name of the parent company. That company told my Client they have a ‘Rental company’ to handle these contracts. As it turned out, they have a great many rental companies and all of them are empty, totally devoid of assets and all safely incorporated to protect the main company from any defaulted franchise costs.

The company attorney in charge of this informed me we could litigate but the company had no assets and was being closed. My Client was clearly out of luck.

This is all legal. Companies are allowed to create as many empty companies as they wish under their own control. Each of these companies is completely independent and is not legally guaranteed by any person or company.

Companies don’t have to be hollow either. Another Client had a claim of tens of thousands of dollars against a company that did over ten million in business in 2010. In 2014 they had disappeared even though there were other companies with the same name incorporated in other states with the same owners. This was legal.

Companies are allowed to drain the assets of a subsidiary company and close the subsidiary without affecting the main company. It is a problem, but there is a solution.

Know everything you can about the company name on your contract. A D&B or Experian Commercial report can let you know about any company’s relationship to other companies as well as their financial status. If there is nothing there you take that company at great risk. If there is a parent company you might want to consider a parent guarantee.

As always, a little knowledge can save you a fortune.

Understanding debt collection and background screening best practices can save your business big money. Building up front applicant screening into your business processes costs you very little, but saves you so much in the end. If you haven’t already, partner with a full service debt collection and applicant screening company to guide your business to a place of security and prosperity. Contact us to sign up for a free account and get started protecting your business today.


Executive Credit Management is a full-service Debt Collection and Applicant Screening agency with over 20 years experience located in Central New Jersey. We provide excellent service in the following areas: Employment ScreeningBusiness Screening, and Tenant Screening. Executive Credit Management belongs to a number of Skip Tracing databases and offers services to help locate and confirm the current address of missing debtors. Other services provided are: litigation evaluation on all lawsuit decisions, improvement of the quality of the applicant data, Lawsuit Monitoring, Handling of Debtor Disputes. Executive Credit Management features the best Call Monitoring System in the Debt Collection industry.