Did the judge try to order me to pierce the corporate veil?

Question

In a legal proceeding a couple of months ago, I was unfortunately at the disadvantage of not being represented by my attorney. (There is a reason which is unrelated to this question.)

I'm not a lawyer; I have no idea how things are supposed to proceed in court. I'm also a CEO of a startup which was pre-revenue and at the time of this event, had not yet closed our current round. As is the way of startups, our owners' draw was less than $500 a month for both myself and my co-founder for the entire preceding year; neither of us had been paid in a very long time.

I am not the only managing member of our company, and while technically I could access any aspect of the company I demand, our CFO has authority over all of our financial concerns and my co-founder, our COO, manages our day-to-day operations. Of the money in the business bank account, every last dime came from accredited angel investors on convertible promissory notes (preferred - all the investors have repayment preference.) At the time of this event, our company was still formed as an LLC.

My question is this: the judge asserted that simply because technically I have access to do so, I could be expected to clean out the business bank account to address whatever individual, personal matters were at hand.

• Surely I can't be ordered to steal from our investors? Cleaning out the business bank account would be embezzling or fraud or both?
• Is there a remedy for a judge who "orders" you to break the law? (Not asking if the order would be tossed out - asking if any kind of rebuke exists)

Noteworthy: Since no circumstances exist under which I will be compelled to rip off my investors, I simply proposed a settlement that leveraged an inheritance, hence this question is not an issue of my personal circumstances; I'm just curious.

Answer 1

Judges often issue orders and warrants that require people or entities to transfer property from one party to another. For example, a search warrant allows law enforcement to seize personal property. A garnishment requires an employer to transfer a worker's wages to someone else. A judgment can affirm that property was stolen and thereby invalidate what was previously good title to the property.

Like any judicial order, such judgments can be found to be invalid and/or illegal. But unless and until they are modified, a judicial order is presumed to be lawful. In fact, it has the force of law. (It is not inaccurate to say a judgment is "law.")

There are a few remedies for unfair, improper, or illegal judgments. The most common include:

1. Motions for reconsideration. If a court makes a mistake of fact or law, this is the most expedient way to bring that to its attention and ask for an appropriate modification to the judgment.

2. Appeals. Any party adversely affected by a judgment can usually find grounds to appeal it to a higher court.

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Of course, things can get messy for affected parties in scenarios like you describe. If a court orders you to transfer money from one person to another, then you cannot be found guilty of a crime for complying with the letter of that order. But depending on the broader circumstances you could later be found personally liable to the proper owners of the money. E.g., they might assert any number of legal claims that result in a court granting another judgment against you for restitution to them.

Answer 2

UK, but I suspect USA would be not much different:

I own a limited corporation. The corporation has a bank account. Since the sole shareholder, the company director, and me personally are the same person, I personally am technically capable of taking any amount out of that account. The money in the account is both money set aside to pay future tax bills (and I have to pay them legally, just not right now), and profit made by the company.

Legally, I personally cannot take any money out. The company director (me) can decide to pay the company's employee (me) a salary on which I have to pay income tax. The company director (me) can decide to pay dividends to the shareholders (me) on which I would have to pay dividend tax. Legally the company is not allowed to pay so much in dividends that it can't meet its obligations, so I cannot legally decide to pay the money set aside for the taxman as a dividend.

Now lets say you personally have nothing, and the company has a bank account filled with money. The court could require that you somehow legally access that money. For example by selling your share of the company, or by trying to convince the company directors to pay a dividend. The court cannot force the company to hand over money. And personally taking money out of the company account would be theft. What the court could do is order the company to make all dividend payments to the court, and not you, or send your income to the court, not you. But that doesn't change how much the company has to pay.

Now if the company account is filled with money from investors, and nothing else, then the company cannot legally pay you a dividend because they wouldn't be able to repay their investors.

And if a court orders you to access the company's money, obviously the company can object to that. Especially if it isn't your money.